Wachovia Asset Securitization Issuance Inactive
Filed: 20 Mar 03, 12:00am
Interim Financial Statements
September 30, 2002
(Unaudited)
Table of Contents
Page |
| Balance Sheets Statements of Income Statements of Cash Flows Notes to Interim Financial Statements (Unaudited) | 2 |
Financial guaranty insurance Company
Balance Sheets
September 30, 2002 and December 31, 2001
(Dollars in thousands)
September 30, December 31,
Assets 2002 2001
---------------- ---------------
(Unaudited)
Fixed maturity securities, available-for-sale, at fair value
(amortized
cost of $2,535,402 in 2002 and $2,339,319 in 2001) $ 2,644,030 2,317,022
Preferred stock, available-for-sale, at fair value (cost of
$30,598
in 2002 and 2001) 30,571 29,888
Short-term investments, at cost, which approximates fair value 423,115 255,271
Cash 1,126 281
Accrued investment income 30,439 34,262
Receivable for securities sold 13,532 --
Reinsurance receivable 7,603 9,640
Deferred policy acquisition costs 73,638 71,700
Property, plant, and equipment net of accumulated
depreciation of
$8,260 in 2002 and $8,213 in 2001 381 428
Prepaid reinsurance premiums 128,410 130,298
Prepaid expenses and other assets 8,978 9,383
---------------- ---------------
Total assets $ 3,361,823 2,858,173
================ ===============
Liabilities and Stockholder's Equity
Liabilities:
Unearned premiums $ 663,593 612,791
Losses and loss adjustment expenses 44,528 48,855
Ceded reinsurance payable 2,348 1,928
Accounts payable and accrued expenses 19,244 18,037
Payable for securities purchased 156,783 14,667
September 30, December 31,
Assets 2002 -176676.739
---------------- ---------------
(Unaudited) -231405.254
Fixed maturity securities, available-for-sale, at fair value
(amortized (286,134)
cost of $2,535,402 in 2002 and $2,339,319 in 2001) $ (481,668) (340,862)
Preferred stock, available-for-sale, at fair value (cost of
$30,599 (597,137) (395,591)
in 2002 and 2001) (712,606) (450,319)
Short-term investments, at cost, which approximates fair value (828,075) (505,048)
Cash (943,544) (559,776)
Accrued investment income (1,059,013) (614,505)
Receivable for securities sold (1,174,482) (669,233)
Reinsurance receivable (1,289,951) (723,962)
Deferred policy acquisition costs (1,405,420) (778,690)
Financial Guaranty Insurance Company
Statements of Cash Flows
September 30, 2002 and December 31, 2001
(Dollars in thousands)
Three months ended Nine months ended
September 30, September 30,
------------------------------------------------------------------
2002 2001 2002 2001
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Revenues:
Gross premiums written $ 58,551 37,265 172,438 97,552
Ceded premiums written (6,690) (4,246) (18,195) (8,844)
------------------------------------------------------------------
Net premiums written 51,861 33,019 154,243 88,708
Increase in net unearned premiums (12,911) (7,252) (52,690) (15,707)
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Net premiums earned 38,950 25,767 101,553 73,001
Net investment income 29,397 32,555 87,576 95,948
Net realized gains 26,343 31,463 56,775 59,586
Other income 232 -- 5,159 --
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Total revenues 94,922 89,785 251,063 228,535
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Expenses:
Losses and loss adjustment
expenses (income) 1,915 451 (2,154) 633
Policy acquisition costs deferred (4,378) (2,816) (12,338) (8,909)
Amortization of deferred policy
acquisition costs 2,394 2,054 10,400 7,830
Other underwriting expenses 8,512 4,857 26,443 19,650
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Total expenses 8,443 4,546 22,351 19,204
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Income before provision
for Federal income
taxes 86,479 85,239 228,712 209,331
Provision for Federal income
taxes 24,233 20,854 59,524 48,167
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Net income $ 62,246 64,385 169,188 161,164
==================================================================
See accompanying notes to interim financial statements.
Financial Guaranty Insurance Company
Notes to Interim Financial Statements
September 30, 2002 and 2001
Nine months ended
September 30,
---------------------------------
2002 2001
---------------------------------
(Unaudited)
Operating activities:
Net income $ 169,188 161,164
Adjustments to reconcile net income to net cash provided
by
operating activities:
Provision for deferred income taxes 804 2,079
Amortization of fixed maturity securities 6,766 3,562
Policy acquisition costs deferred (12,338) (8,909)
Amortization of deferred policy acquisition costs 10,400 7,830
Depreciation of fixed assets 47 163
Change in reinsurance receivable 2,037 (16)
Change in prepaid reinsurance premiums 1,888 6,278
Change in accrued investment income, prepaid
expenses,
and other assets 4,228 (709)
Change in unearned premiums 50,802 9,429
Change in losses and loss adjustment expense reserves (4,327) 563
Change in ceded reinsurance payable, accounts
payable
and accrued expenses 1,627 (6,587)
Change in current Federal income taxes payable 28,809 18,163
Net realized gains on investments (56,775) (59,586)
Other net (4,137) 2,113
---------------------------------
Net cash provided by operating activities 199,019 135,537
---------------------------------
Investing activities:
Nine months ended
September 30,
---------------------------------
2002 -23469.6802
---------------------------------
(Unaudited) -26617.2439
Operating activities: (29,765)
Net income $ (26,514) (32,912)
Adjustments to reconcile net income to net cash provided
by (30,746) (36,060)
operating activities: (34,978) (39,207)
Provision for deferred income taxes (39,210) (42,355)
Amortization of fixed maturity securities (43,442) (45,503)
Policy acquisition costs deferred (47,675) (48,650)
Amortization of deferred policy acquisition costs (51,907) (51,798)
Depreciation of fixed assets (56,139) (54,945)
Change in reinsurance receivable (60,371) (58,093)
(1) Basis of Presentation
The interim financial statements of Financial Guaranty Insurance Company
(the Company) in this report reflect all adjustments necessary, in the
opinion of management, for a fair statement of (a) results of operations
for the three months and nine months ended September 30, 2002 and 2001,
(b) the financial position at September 30, 2002 and December 31, 2001,
and (c) cash flows for the nine months ended September 30, 2002 and 2001.
These interim financial statements should be read in conjunction with the
financial statements and related notes included in the 2001 audited
financial statements.
The preparation of financial statements in conformity with accounting
principles generally accepted in the United States of America (US GAAP)
requires management to make estimates and assumptions that affect the
reported amounts of assets and liabilities and disclosure of contingent
assets and liabilities at the date of the financial statements and the
reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
(2) Statutory Accounting Practices
The financial statements are prepared on the basis of US GAAP, which
differs in certain respects from accounting practices "prescribed or
permitted" by the state insurance regulatory authorities. The Company's
statutory basic financial statements are prepared on the basis of
accounting prescribed or permitted by the State of New York Insurance
Department. A reconciliation of the Company's net income for the nine
months ended September 30, 2002 and 2001, and stockholder's equity as of
September 30, 2002 and 2001 on a GAAP basis to the corresponding amounts
on a statutory basis is as follows:
Nine months ended September 30,
----------------------------------------------
2002 2001
---------------------- ----------------------
Net Stockholder'sNet Stockholder's
income equity income equity
--------- ----------- --------- -----------
--------- ----------- --------- -----------
GAAP basis amount $ 169,188 2,256,371 161,164 1,999,093
Premium revenue
recognition 4,165 (207,252) (5,711) (210,685)
Deferral of
acquisition costs (1,938) (73,638) (1,079) (69,509)
Contingency reserve -- (990,825) -- (856,365)
Portfolio loss
reserves (10,200) 18,500 -- 28,700
Non-admitted assets -- (391) -- (473)
Case-basis loss
reserves 1,093 498 13 (185)
Deferral of income
taxes (8,650) 64,342 2,079 74,881
Unrealized gains on
fixed maturity
securities, net
of tax -- (69,557) -- (31,176)
Recognition of
profit commission (120) (8,340) (582) (7,981)
Unauthorized
reinsurance -- (17) -- (25)
Allocation of tax
benefits due to
Parent's net
operating loss to
Company -- 11,385 -- 11,385
Contingency reserve
tax deduction -- 102,540 -- 95,008
--------- ----------- --------- -----------
--------- ----------- --------- -----------
Statutory basis
amount $ 153,538 1,103,616 155,884 1,032,668
========= =========== ========= ===========
Subsequent to September 30, 2002, the State of New York Insurance
Department adopted certain of the deferred tax provisions of Statement of
Statutory Accounting Principles (SSAP) No. 10 - Income Taxes. The Company
does expect the impact of adoption to be material.
(3) Dividends
Under New York Insurance Law, the Company may pay a dividend only from
earned surplus subject to the following limitations:
o Statutory surplus after dividends may not be less than the minimum
required paid-in capital, which was $72.5 million in 2001.
o Dividends may not exceed the lesser of 10% of its surplus or 100% of
adjusted net investment income, as defined therein, for the twelve
month period ending on the preceding December 31, without the prior
approval of the Superintendent of the New York State Insurance
Department.
The Company declared dividends of $-0- and $200 million during the first
nine months of 2002 and 2001 respectively. The 2001 dividends were
extraordinary dividends approved by the New York State Insurance
Department and were paid during the third quarter of 2001. None of the
Company's surplus is available for dividends during 2002 without approval
by the New York State Insurance Department.
(4) Income Taxes
The Company's effective Federal corporate tax rate (26.0% and 23.0% for
the nine months ended September 30, 2002 and 2001 and 28.0% and 24.5% for
the three months ended September 30, 2002 and 2001) is less than the
statutory corporate tax rate of 35% on ordinary income due to permanent
differences between financial and taxable income, principally tax-exempt
interest.
(5) Reinsurance
Net premiums earned are shown net of premiums ceded of $20.1 million and
$15.1 million for the nine months ended September 30, 2002 and 2001 and
$8.0 million and $3.2 million for the three months ended September 30,
2002 and 2001.
7
(6) Comprehensive Income
Comprehensive income encompasses all changes in stockholder's equity
(except those arising from transactions with stockholders) and includes
net income, net unrealized capital gains or losses on available-for-sale
securities, net of taxes, and foreign currency translation adjustments,
net of taxes. The following is a reconciliation of comprehensive income:
Three months ended Nine months ended
September 30, September 30,
-------------------- ---------------------
2002 2001 2002 2001
--------- --------- --------- ---------
Net income $ 62,246 64,385 169,188 161,164
Other comprehensive
income:
Change in unrealized
investment gains,
net of tax expense
of $25,057 and
$45,469 for the
three and nine
months ended
September 30, 2002
and $5,479 and
$4,911 for the
three and nine
months ended
September 30, 2001 46,535 10,176 84,442 9,121
Change in foreign
exchange losses,
net of tax benefit
of $0 and ($2,228)
for the three and
nine months ended
September 30, 2002
and $0 and ($460)
for the three and
nine months ended
September 30, 2001 -- -- (4,138) (854)
--------- --------- --------- ---------
Comprehensive income $ 108,781 74,561 249,492 169,431
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