In 2001 and 2002 the general economic recession caused a severe deterioration in many investment grade companies such as Owens Corning, MCI WorldCom, Pacific Gas and Electric, Southern California Edison, US Airways and Sunbeam. While some actually went bankrupt, many others lost their investment grade debt ratings with resulting market declines. The Insurance Company’s investment portfolio realized losses from sales and from recognition of other than temporary impairment charges, with the result that net losses were encountered in 2001 and 2002. In 2001, these losses were $65.1 million with an increase to a loss of $146.7 million in 2002. A corollary impact of these was that capital ratios were adversely affected in both years. 2003 recoveries in the market values were experienced, which resulted in the Corporation achieving record high levels of capital and improved capital ratios.
As described under “Ratings” and “Regulation,” the Corporation’s business is substantially affected by such capital ratios and their impact on its rating. Consequently, the Insurance Company’s management established a policy of reducing the level of sales increases until capital and surplus ratios are further improved. Sales will also be made with a greater selectivity based on a profit review. The Insurance Company has determined that the level of competition in the sale of traditional and universal life insurance products has made it very difficult for smaller insurance companies, such as the Insurance Company, to participate in this business in a profitable way. Accordingly, the Insurance Company has determined that, under the current market conditions, it will not participate in the sale of traditional and universal life policies.
This Annual Report reflects the restatement of the Company’s Consolidated Financial Statements for the years ended December 31, 2002 and December 31, 2003 to consolidate the financial statements of the issuers of certain principal protected note investments made by the Company and to apply the provisions of EITF 99-20Recognition of Interest Income and Impairment on Purchased and retained Beneficial Interest in Securitized Financial Assets in accounting for the variable income notes now included as separate investments in the Company’s financial statements as a result of the restatement, and the remaining principal protected notes for which the financial statements of the related issuers have not been consolidated. These corrections resulted in significant changes in DAC amortization and deferred income taxes. The restatement of the 2002 financial statements also incorporates the cumulative impact as an adjustment to the opening balance of retained earnings for 2002 of the restatement from the dates of purchase of such principal protected note investments, which range from 1995 to 1999.
The Insurance Company is engaged in the sale of insurance products with three primary lines of business: individual annuities, individual life insurance, and group accident and health. Revenues are derived primarily from premiums received from the sale of annuity contracts, life and accident and health products, and gains (or losses), from our investment portfolio.
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.
Unless specifically stated otherwise, all references to 2004, 2003 and 2002 refer to our fiscal years ended, or the dates, as the context requires, December 31, 2004, December 31, 2003 and December 31, 2002, respectively.
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 results indicated in these forward-looking statements. Important factors, among others, that could cause our results to differ from those indicated in the forward-looking statements are discussed under “Certain Factors That May Affect Our Business.”
The variable rate income notes underlying all of the Corporation’s principal protected notes investments are included in the Corporation’s balance sheet and have been assessed for impairment. The notes deemed to have been other than temporarily impaired have been written down to fair value through the income statement. Previously, the impairment of the principal protected notes was recorded as an unrealized loss and included under accumulated other comprehensive gain (loss) on the Corporation’s Balance Sheet.
The U.S. Treasury Strips are recorded at cost on the date of purchase and amortization of the discount on those instruments is recorded as interest income in subsequent periods.
Certain Factors That May Affect Our Business There are numerous factors, some of which are outside our control, which could have a material impact on our business. These factors include market conditions, legal and regulatory changes and operational risk. A summary of these factors is set below:
Operational Risk: Business is dependent on our ability to process on a daily basis our payment obligations under outstanding policies and the condition of the investment portfolio. Any internal failures in the internal processes, people, or systems could lead to adverse consequences to the Corporation. In addition, despite the contingency plans in place, the ability to conduct business may be adversely impacted by the disruption in the infrastructure that supports our business and the community in which we are located.
Interest Rate Risk: The Insurance Company’s principal products are deferred annuities, which are interest rate sensitive instruments. In an interest rate environment of falling or stable rates, as has persisted in recent years, the Insurance Company’s annuity holders are less likely to seek to surrender their annuities prior to maturity to seek alternative, higher-yielding investments. However, in an environment of moderately or significantly increasing rates, such surrenders should be expected to increase. The existence currently of surrender fees on approximately 75% of the Insurance Company’s outstanding deferred annuities acts as a deterrent against surrenders. However, if interest rates climb sufficiently, such fees may not have a significant deterrent effect. Moreover, the surrender fees are only in effect for up to the first 7 years of each annuity policy and, therefore, disappear over time (see table below). In the event of a substantial increase in surrenders during a short period of time, the Insurance Company may have to sell off longer-term assets to pay current surrender liabilities. The Insurance Company continually develops strategies to address the match between the timing of its assets and liabilities. To that end, it is currently reducing the amount of assets invested in longer-term investments and reinvesting in short and intermediate return investments at reduced yields. These reduced yields are partially offset by the gains being recognized by the Insurance Company from the sale of the long-term assets. The Insurance Company is also benefiting in this regard from the consolidation of the issuers of the principal protected note investments in its investment portfolio, which has placed into the Insurance Company’s investment portfolio a par value of approximately $292.3 million in U.S. Treasury Strips and similar instruments with maturity dates commencing in 2009.
The reduction in the net investment income ratios from 2000 to 2003 was attributable to the low interest rate environment and other economic conditions. During periods of declining interest rates, paydowns on mortgage-backed securities with higher interest rates and callable debt securities increase. During such periods, the Insurance Company will likely not be able to reinvest the proceeds at comparable yields.
Investments The Insurance Company derives a predominant portion of its total revenues from investment income. The Insurance Company manages most of its investments internally. All investments made on behalf of the Insurance Company are governed by the general requirements and guidelines established and approved by the Insurance 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 Corporation and the Insurance Company. The Insurance Company's investment policy must comply with NYSID regulations and the regulations of other applicable regulatory bodies.
As of December 31, 2004, approximately 6.8% of the Insurance Company's total invested assets were invested in limited partnerships and equity securities. Investments in limited partnerships are included in the Corporation's consolidated balance sheet under the heading “Other invested assets.” See “Note 2 to the Notes to Consolidated Financial Statements.” The Insurance Company is committed, if called upon during a specified period, to contribute an aggregate of approximately $96.4 million of additional capital to certain of these limited partnerships. $17.0 million in 2005, $38.4 million in 2006, $22.4 in 2007, $9.7 in 2009 and $9.0 in 2010. The Insurance 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., equity securities, debt securities and real estate), plus a level of illiquidity, which is mitigated by the ability of the Insurance Company to take annual distributions of partnership earnings. There can be no assurance that the Insurance Company will continue to achieve the same level of returns on its investments in limited partnerships as it has historically. Further, there can be no assurance that the Insurance Company will receive a return of all or any portion of its current or future capital investments in limited partnerships. The failure of the Insurance 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 Corporation's financial condition and results of operations.
The primary market risks in the Insurance Company’s investment portfolio are interest rate risk and, to a lesser degree, equity price risk. The Insurance Company's exposure to foreign exchange risk is not significant. The Insurance Company has no direct commodity risk. Changes in interest rates can potentially impact the Corporation’s profitability. In certain scenarios where interest rates are volatile, the Insurance Company could be exposed to disintermediation risk (asset/liability mismatch) and reduction in net interest rate spread or profit margin. [See “Interest Rate Risk” above.]
As has been previously reported, between 1997 and 1999, the Insurance Company made a series of investments in instruments known as principal protected notes. These Notes, marketed by investment companies, consist of an investment in a trust unit or corporate note. The trusts contain two assets, a variable rate income note issued by a collateralized debt obligation structure and a AAA rated zero coupon security, primarily U.S. Treasury Strips, with maturity dates no later than the variable rate income note and a face value equal to the principal amount of the investment in the principal protected note. The U.S. Treasury Strip is designed to defease the principal amount of the investment, while the variable rate income note provides periodic distributions of cash flow when sufficient cash flow is generated by the collateralized debt obligation structure.
In January 2005, A.M. Best Company affirmed the Insurance Company’s rating at “B+” (Very 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.
During 2002, Moody's Investor Services (“Moody's”) lowered the Insurance Company's insurance financial strength rating from Baa1 to Ba1 (“Questionable financial security”). Standard & Poor's Corporation (“Standard & Poor's”) lowered the Insurance Company's insurance financial strength from A- to BB+ which is defined as “Less vulnerable in the near-term but faces major ongoing uncertainties to adverse business, financial and economic conditions”. The credit rating of the Corporation's Senior Notes, due February 15, 2009 (the “Senior Notes”), was lowered to a B+ (More vulnerable to adverse business, financial and economic conditions but currently has the capacity to meet financial requirements) from a BBB- by Standard & Poor's and to a B1 (“Poor financial security”) from Ba1 by Moody's. In May 2004, Moody’s lowered this rating to B2, but raised the outlook on the rating from negative to stable.
Comparison of Fiscal Year 2004 to Fiscal Year 2003 and Fiscal Year 2003 to Fiscal Year 2002.
Universal life and investment type policy fee income was approximately $2.9 million in fiscal 2004, as compared to approximately $1.0 million in fiscal 2003 and approximately $.7 million in fiscal 2002. The increase in 2004 is attributed to an increased number of life policies surrendered during 2004 that were within the surrender charge period. Policy fee income consists principally of amounts assessed during the period against policyholders' account balances for mortality charges and surrender charges.
During periods of declining interest rates, pay-downs on mortgage-backed securities with higher interest rates and callable debt securities increase. During such periods the Insurance Company, for the most part, will not likely be able to reinvest the proceeds at comparable yields.
Net realized investment gains (pre-tax) amounted to $15.3 million in fiscal 2004, as compared to $10.3 million in fiscal 2003 and a loss of approximately $146.7 million in fiscal 2002. Net realized investment gains (losses) for years ended December 31, 2004, 2003 and 2002 include realized investment losses of approximately $4.6 million, $31.8 million, and $147.3 million, respectively, attributable to writedowns of certain securities contained in the Insurance Company's investment portfolio. Investment securities with unrealized losses are placed on an internal watch list and are carefully evaluated to determine whether such losses are other than temporary. Evaluations of watch list securities are monitored on an ongoing basis. Various criteria are utilized in the evaluation of the financial performance of the issuer, including capital structure, debt maturities, earnings trends, asset quality, Industry trends, regional and economic trends and specific events including: a) company specific event, such as missed interest payments, accounting issues, gain or loss of major revenue generating contract(s), significant change in availability and cost of raw material or labor; and, b) specific market-driven events such as dramatic changes in interest rates or geo-political events. We then evaluate these results in the context of our general intent to hold the investments to maturity barring any significant adverse change in credit conditions, as well as our need for liquidity. When we determine that such conditions are not simply temporary, we adjust the book value to reflect the net realizable value or fair value, as appropriate, on a quarterly basis. Realized investment gains (losses) also result from sales of certain equities and convertible securities, and calls and sales of fixed maturity investments in the Insurance Company's investment portfolio.
The interest expense on the Corporation's notes payable amounted to approximately $9.8 million in fiscal 2004, approximately $9.6 million in fiscal 2003 and approximately $10.6 million in fiscal 2002. The increase in interest expense in fiscal 2004 is attributable to higher interest rates on the Corporation’s $50 million line of credit with the Bank of New York and lower interest rates in fiscal 2003 when comparing to fiscal 2002.
General expenses, taxes and commissions to agents totaled approximately $28.0 million in fiscal 2004 as compared to approximately $29.6 million in fiscal 2003 and approximately $47.2 million in fiscal 2002. This represents a decrease of approximately 5.5% comparing fiscal 2004 to fiscal 2003 and a decrease of approximately 37.4% comparing fiscal 2003 to fiscal 2002. The decrease in fiscal 2004 compared to fiscal 2003 is attributable to a reduction in the Insurance Company’s general expenses due to expense controls initiated in 2003. The decrease in fiscal 2003 compared to 2002, is principally attributable to lower costs associated with lower commissions and selling expenses incurred associated with the lower level of sales of single premium annuities offset by the Corporation¢s general expenses and taxes.
Under applicable accounting rules (FASB 97), DAC related to deferred annuities is amortized in proportion to the estimated gross profits over the estimated lives of the contracts. Essentially, as estimated profits of the Insurance Company related to these assets increase, the amount and timing of amortization is accelerated. In 2001 and 2002, the Insurance Company had significant realized investment losses, leading to substantially increased credits against DAC amortization in those years. In 2003 and 2004, the Insurance Company’s investment performance was substantially improved from the prior years, resulting in charges to DAC amortization. (See also the discussion of Deferred Policy Acquisition Costs under Critical Accounting Policies below.)
The Insurance Company is subject to various regulatory restrictions on the maximum amount of payments, including loans or cash advances that it may make to us 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 Corporation 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 and (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 Corporation in excess of that amount 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. Management of the Corporation cannot provide assurance that the Insurance Company will have statutory earnings to support payment of dividends to the Corporation 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. The Insurance Company paid no dividends to the Corporation in fiscal 2004, 2003 or 2002.
Notwithstanding the above, the Corporation was able to meet all its liquidity needs in 2004, including the payment of dividends, and anticipates being able to meet those needs in 2005.
The indenture governing the Senior Notes contains covenants relating to limitations on liens and sale or issuance of capital stock of the Corporation. In the event the Corporation violates such covenants as defined in the indenture, we may be obligated to offer to repurchase the entire outstanding principal amount of such notes. As of December 31, 2004, we believe that we are in compliance with all of the covenants.
In order to maintain consistency in our portfolio, our deferred annuity products incorporate surrender charges to discourage surrenders or withdrawals. An annuitant may not terminate or withdraw funds from their annuity contracts for a significant initial period (generally seven years) without incurring substantial penalties in the form of surrender charges. These surrender charges generally range from 1% to 7% of the investment. Approximately 25.4%, 25.1% and 24.9% of the Insurance Company's deferred annuity contracts in force (measured by reserves) as of December 31, 2004, 2003, and 2002 are surrenderable without charge.
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. Over the
The Insurance Company conducts periodic cash flow tests assuming different interest rates scenarios in order to demonstrate the ability to meet any surrender demands without incurring substantial losses. If a test reveals a potential deficiency in its cash flow, the Insurance Company may be required to increase its reserves against such liabilities to satisfy its statutory accounting requirements In 2004, the Insurance Company increased its reserves on a statutory basis by $50 million to address these contingencies.
As a further element of its asset liability management strategy, the Company intends to hedge against the risks posed by a rapid and sustained rise in interest rates by entering into a form of derivative transaction known as payor swaptions. Swaptions are options to enter into an interest rate swap arrangement with a counter party at a specified future date. At expiration, the counter party would be required to pay the Insurance Company the amount of the present value of the difference between the fixed rate of interest on the swap agreement and a specified strike rate in the agreement multiplied by the notional amount of the swap agreement. The effect of these transactions would be to lessen the negative impact on the Insurance Company of a significant and prolonged increase in interest rates. With the swaptions, the Company should be able to maintain more competitive crediting rates to policyholders when interest rates rise.
The Insurance Company has submitted its Derivate Use Plan concerning the payor swaptions to the NYSID and is awaiting required approval before implementing the plan. The Insurance Company has engaged the financial risk management group of Milliman, Inc., its actuarial consulting firm, to assist it in connection with its proposed use of these derivative investments.
(1) These liabilities are reflected within “Policyholder Liabilities” in the consolidated balance sheet, and amount to $999.1 Million as of December 31, 2004. The difference between the recorded liability and the total payment amount is $954.3 Million and is comprised of (i) future interest to be credited and (ii) the effect of mortality discount for those payments that are life contingent. Most of the remaining policyholder liabilities ($2,771.0 Million) involve deferred annuity contracts, which are contractually surrenderable at any time. Approximately 75% of these obligations have surrender penalties. These surrender charges, along with those contracts that involve contractual maturities, help to mitigate the asset/liability management process. (See discussion under Liquidity and Capital Resources Section.)
In a rising interest rate environment, the Insurance 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 Insurance Company's fixed maturity portfolio decreases resulting in a decline in shareholders' equity. Concurrently, the Insurance 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. Moreover, surrenders of its outstanding annuities would likely accelerate. Management believes that liquidity necessary in such an interest rate environment to fund withdrawals, including surrenders, would be available through income, cash flow, the Insurance Company's cash reserves and, if necessary, proceeds from the sale of short-term and long-term investments.
Interest rate changes also may have temporary effects on the sale and profitability of our annuity products. For example, if interest rates rise, competing investments (such as annuity or life insurance products offered by the Insurance Company's competitors, certificates of deposit, mutual funds and similar instruments) may become more attractive to potential purchasers of the Insurance Company's products until the Insurance Company increases the rates credited to holders of its 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 Insurance Company depending on the attractiveness of alternative investments available to the Insurance Company's customers. In that regard, in the current interest rate environment, the Insurance 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.
In December 2004, FASB revised SFAS 123 to Share-Based Payment (“SFAS 123 r”). SFAS 123 r provides additional guidance on determining whether certain financial instruments awarded in share-based payment transactions are liabilities. SFAS 123(r) also requires that the cost of all share-based transactions be recorded in the financial statements. The revised pronouncement must be adopted by the Company by July 1, 2005. The Company is in the process of assessing impact of adopting SFAS 123r but believes the impact will not have a significant impact on the Company's consolidated financial statements.
accounting guidance regarding the determination of when an impairment of debt and marketable equity securities and investments accounted for under the cost method should be considered other-than-temporary and recognized in income. An
EITF 03-1 consensus reached in November 2003 also requires certain quantitative and qualitative disclosures for debt and marketable equity securities classified as available-for-sale or held-to-maturity under SFAS No.115, Accounting for Certain Investments in Debt and Equity Securities, that are impaired at the balance sheet date but for which an other-than-temporary impairment has not been recognized. The Company has complied with the disclosure requirements of EITF 03-1, which were effective December 31, 2003. The accounting guidance of EITF 03-1 relating to the recognition of investment impairment, which was to be effective in the third quarter of 2004 has been delayed pending the development of additional guidance. The Company is actively monitoring the deliberations relating to this issue at the Financial Accounting Standards Board (“FASB”) and currently is unable to determine the impact of EITF 03-1 on its consolidated financial statements. See Note 2.
In December 2003, the Accounting Standards Executive Committee of the American Institute of Certified Public Accountants (“AcSEC”) issued Statement of Position 03-3, “Accounting for Certain Loans or Debt Securities” (SOP 03-3). SOP 03-3 addresses the accounting for differences between contractual and expected cash flows to be collected from an investment in loans or fixed maturity securities (collectively hereafter referred to as “loan(s)”) acquired in a transfer if those differences are attributable, at least in part, to credit quality. SOP 03-3 limits the yield that may be accreted to the excess of the estimated undiscounted expected principal, interest and other cash flows over the initial investment in the loan. SOP 03-3 also requires that the excess of contractual cash flows over cash flows expected to be collected not be recognized as an adjustment of yield, loss accrual or valuation allowance. SOP 03-3 is effective for loans acquired in fiscal years beginning after December 15, 2004. For loans acquired in fiscal years beginning on or before December 15, 2004 and within the scope of Practice Bulletin 6 “Amortization of Discounts on Certain Acquired Loans”, SOP 03-3, as it pertains to decreases in cash flows expected to be collected, should be applied prospectively for fiscal years beginning after December 15, 2004. Adoption of this statement did not have an impact on the “Company’s consolidated financial condition or results of operations for the year ended December 31, 2004.
In July 2003, AcSEC issued a final Statement of Position 03-1, “Accounting and Reporting by Insurance Enterprises for Certain Nontraditional Long-Duration Contracts and for Separate Accounts” (the “SOP”). The Major provisions of the SOP require: recognizing expenses for a variety of contracts and contract features, including guaranteed minimum death benefits (“GMDB”), certain death benefits on universal-life type contracts and annuitization options, on an accrual basis versus the previous method of recognition upon payment; reporting and measuring assets and liabilities of certain separate account products as general account assets and liabilities when specified criteria are not met; reporting and measuring the company’s interest in its separate accounts as general account assets based on the insurer’s proportionate beneficial interest in the separate account’s underlying assets’ and Capitalizing sales inducements that meet specified criteria and amortizing such amounts over the life of the contracts using the same methodology as used for amortizing deferred acquisition costs (“DAC”). The SOP is effective for financial statements for fiscal years beginning after December 15, 2003. SOP 03-1 did not have an impact on the Company’s financial statements.
In May 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 150, Accounting for Certain Financial Instruments with Characteristics of Both Liabilities and Equity. Statement No. 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. In addition, the Statement requires an issuer to classify certain instruments with specific characteristics described in it as liabilities. This Statement is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after June 15, 2003. The adoption of Statement No. 150 did not have an impact on the Company’s consolidated financial statements.
In April 2003, the Financial Accounting Standards Board issued Statement of Financial Accounting Standard No. 149, Amendment of Statement 133 on Derivative Instruments and Hedging Activities. Statement No. 149 amends Statement 133 for decisions made (1) as part of the Derivatives Implementation Group process that effectively required amendments to Statement 133, (2) in connection with other Board projects dealing with financial instruments, and (3) in connection with implementation issues raised in relation to the application of the definition of a derivative. The Statement clarifies under what circumstances a contract with an initial net investment meets the characteristics of a derivative discussed in paragraph 6(b) of Statement 133, clarifies when a derivative contains a financing component, amends the definition of an underlying to conform it to language used FASB Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, and amends certain other existing pronouncements. Those changes will result in more consistent reporting of contracts as either derivatives or hybrid instruments. This statement is effective for
contracts entered into or modified after September 30, 2003 and for hedging relationships designated after September 30, 2003. The adoption of Statement No. 149 did not have an impact on the Company’s consolidated financial statements.
in accordance with FIN 46, other than in the disclosure required by FIN 46. The is effective for financial statements issued after October 9, 2003. The adoption of FIN 46 and FIN 46-6 did not have an impact on the consolidated financial statements of the Company as of December 31, 2003 or December 31, 2004.
In October 2002, the FASB issued SFAS No. 147, Acquisitions of Certain Financial Institutions (“SFAS 147”). This statement, which provides guidance on the accounting for the acquisition of a financial institution, applies to all acquisitions except those between two or more mutual enterprises. The standard is effective for acquisitions for which the date of acquisition is on or after October 1, 2002. The adoption of SFAS 147 did not have an impact on the Company’s consolidated financial statements.