PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share data)

	SIX MONTHS ENDED JUNE 30 (UNAUDITED)
REVENUES:	2004			2003
Insurance Revenues:
Premiums	$	4,868		$	4,534
Annuity considerations	17,698			18,510
Universal life and investment type policy
fee income	1,583			552
Net investment income	166,065			135,649
Realized investment gains	12,702			8,523
Other income	563			1,280

TOTAL REVENUES	203,479			169,048

BENEFITS AND EXPENSES:
Death and other life insurance benefits	6,019			9,764
Annuity benefits	36,696			35,584
Interest credited to policyholders' account
balances	81,483			79,665
Interest expense on notes payable	4,840			4,871
Other interest and other charges	421			213
Increase in liability for future policy benefits	5,925			7,451
Commissions to agents, net	5,702			7,597
General expenses and taxes	9,861			6,506
Change in deferred policy acquisition costs	(1,388)			(5,375)

TOTAL BENEFIT AND EXPENSES	149,559			146,276

Income before income taxes	53,920			22,772

Provision (benefit) for income taxes
Current	20,587			9,176
Deferred	(1,938)			(2,297)
	18,649			6,879

NET INCOME	$		35,271	$	15,893

Earnings per common share	$ 1.20			$ .54

Weighted average number of shares outstanding
During the period	29,337,557			29,334,668

The accompanying notes are an integral part of these Unaudited Consolidated
Financial Statements.

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF INCOME

(In thousands, except share data)

	THREE MONTHS ENDED JUNE 30 (UNAUDITED)
REVENUES:	2004			2003
Insurance Revenues:
Premiums	$		2,060	$	3,276
Annuity considerations	6,712			8,533
Universal life and investment type policy
fee income	1,206			231
Net investment income	87,557			68,803
Realized investment gains	7,070			13,566
Other income	664			(143)

TOTAL REVENUES	105,269			94,266

BENEFITS AND EXPENSES:
Death and other life insurance benefits	2,836			5,900
Annuity benefits	18,113			17,849
Interest credited to policyholders' account
balances	41,081			40,339
Interest expense on notes payable	2,448			2,413
Other interest and other charges	214			132
Increase in liability for future policy benefits	1,471			1,449
Commissions to agents, net	2,182			3,988
General expenses and taxes	4,016			3,868
Change in deferred policy acquisition costs	(404)			(1,962)

TOTAL BENEFIT AND EXPENSES	71,957			73,976

Income before income taxes	33,312			20,290

Provision (benefit) for income taxes
Current	13,065			10,054
Deferred	(1,549)			(3,942)
	11,516			6,112

NET INCOME	$	21,796		$	14,178

Earnings per common share	.74			.48

Weighted average number of shares outstanding
During the period	29,340,447			29,334,668

The accompanying notes are an integral part of these Unaudited Consolidated
Financial Statements.

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY

FOR THE SIX MONTHS ENDED JUNE 30, 2004 AND 2003

(in thousands except shared data)

(unaudited)

	Capital Stock	Additional Paid-in- Capital	Retained Earnings	Accumulated Other Comprehensive Income	Total
Balance at January 1, 2003	$ 293	$ 0	$380,578	$ 17,820	$398,691

Comprehensive Income:

Net Income			15,893		15,893

Transition Adjustment				(3,807)	(3,807)

Net Unrealized
Investment Gains				132,600	132,600

Comprehensive Income					144,686

Purchase & Retirement of Stock

Dividends Paid to Shareholders ($.10 per share)			(5,867)		(5,867)

Balance at June 30, 2003	$ 293	$ 0	$390,604	$146,613	$537,510


Balance at January 1, 2004	$ 293	$ 0	$ 400,129	$88,343	$ 488,765

Comprehensive Income:

Net Income			35,271		35,271

Transition Adjustment				(3,135)	(3,135)

Net Unrealized Investment Losses				(49,293)	(49,293)

Comprehensive Income					(17,157)

Issuance of Shares Under stock option plan	1		247		248

Dividends paid to Shareholders ($.10 per share)			(5,858)		(5,858)

Balance at June 30, 2004	$294	$0	$429,789	$35,915	$465,998

The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(In thousands)

SIX MONTHS ENDED JUNE 30, 2004 (UNAUDITED)
	2004			2003
OPERATING ACTIVITIES:
Net Income	$	35,271		$	15,893
Adjustments to reconcile net income to net cash provided by operating activities:
Benefit for deferred income taxes	(1,938)			(2,297)
Depreciation and amortization	496			538
Net accrual of discount on fixed maturities	(13,582)			(12,435)
Realized investment (gains) losses	(12,702)			(8,523)
Changes in:
Accrued investment income	(1,250)			(2,104)
Deferred policy acquisition cost	(1,388)			(5,375)
Federal income tax recoverable	24,752			8,882
Liability for future policy benefits	6,697			5,053
Other items	5,377			20,262

Net Cash Provided By Operating Activities	41,733			19,894

INVESTING ACTIVITIES:
Fixed Maturities:
Available for Sale:
Acquisitions	(318,961)			(845,347)
Maturities, calls and repayments	180,025			378,677
Sales	16,082			385,269
Common Stocks:
Acquisitions	(11,925)			(15,498)
Sales	16,880			8,539
Increase (decrease) in short-term investments and policy loans	7,288			270,846
Other Invested Assets:
Additions to other invested assets	(40,614)			(84,012)
Distributions from other invested assets	42,242			39,797
Mortgage loan on real estate	11,080			91
Amount due from security transactions	485			(2,814)

Net Cash (Used In)/Provided By In Investing Activities	(97,418)			135,548

FINANCING ACTIVITIES:
Proceeds from dollar repurchase agreements	0			1,057,901
Repayment of dollar repurchase agreements	0			(1,320,419)
Increase in policyholders' account balances	73,353			129,429
Bank overdrafts	(7,228)			2,273
Deposits on policies to be issued	(9,440)			(635)
Issuance of common stock	247			0
Dividends paid to shareholders	(5,858)			(5,867)

Net Cash Provided By/(Used In) Financing Activities	51,074			(137,318)

(Decrease)/Increase in Cash and Cash Equivalents	(4,611)			18,124
Cash and Cash Equivalents at Beginning of Year	12,907			13,101

Cash and Cash Equivalents at End of Period	$		8,296	$	31,225
						$ (2,512)
Supplemental Cash Flow Disclosure:

Income Taxes Paid	$		12,003	$	295

Interest Paid	$		4,202	$	4,545

The accompanying notes are an integral part of these Unaudited Consolidated Financial Statements.

PRESIDENTIAL LIFE CORPORATION AND SUBSIDIARIES

CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS

1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

A. Business

Presidential Life Corporation ("the Company"), 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 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 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, 2004 are not necessarily indicative of the results that may be expected for the year ending December 31, 2004. Management believes that, although the disclosures are adequate to make the information presented not misleading, the consolidated financial statements should be read in conjunction with the footnotes contained in the Company's audited consolidated financial statements for the year ended December 31, 2003.

C. Investments

Fixed maturity investments available for sale represent investments, which 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 net realizable 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 net realizable value and the loss is recorded in the income statement.

Other invested assets are recorded using the equity method represents interests in limited partnerships, which principally are engaged in real estate, international opportunities, acquisitions of private growth companies, debt restructuring and merchant banking. 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 Company to take annual distributions of partnership earnings. 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. Management believes that the net realizable value of such limited partnership interests, in the aggregate, exceeds their related carrying value as of June 30, 2004. As of June 30, 2004, the Company was committed to contribute, if called upon, an aggregate of approximately $83.0 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.

In evaluating whether an investment security or other investment has suffered an impairment in value which 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 net realizable or fair value, as applicable (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.

As of May 2003, the Company no longer participates in "dollar roll" repurchase agreement transactions. Dollar roll transactions involve the sale of certain mortgage-backed securities to a holding institution and a simultaneous agreement to purchase substantially similar securities for forward settlement at a lower dollar price. The proceeds are invested in short‑term securities at a positive spread until the settlement date of the similar securities. During this period, the holding institution receives all income and prepayments for the security. Dollar roll repurchase agreement transactions are treated as financing transactions for financial reporting purposes.

Realized gains and losses on disposal of investments are determined for fixed maturities 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. Mortgage loans are stated at their amortized indebtedness. Policy loans are stated at their unpaid principal balance.

The Company's investments in real estate include two buildings in Nyack, New York, which are occupied entirely by the Company. The investments are carried at cost less accumulated depreciation. Accumulated depreciation amounted to $206,800 and $206,800 at June 30, 2004 and 2003, respectively, and both buildings are fully depreciated and have no depreciation expense.

Deferred Policy Acquisition Costs

The costs of acquiring new business (principally commissions, certain underwriting, agency and policy issue expenses), all of which vary with the production of new business, have generally been deferred. When a policy is surrendered, the remaining unamortized cost is written off. 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.

Deferred policy acquisition costs are amortized over periods ranging from 15 to 25 years for universal life products and investment‑type products 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. The effects of revisions to reflect actual experience on previous amortization of deferred policy acquisition costs, subject to the limitation that the accrued interest on the deferred acquisition costs balance may not exceed the amount of amortization for the year, are reflected in earnings in the period estimated gross profits are revised.

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, 2004 and 2003 was 29,357,368 and 29,334,668 respectively. The dilution from the potential exercise of stock options outstanding did not change basic EPS.

I. New Accounting Pronouncements

In December 2003, the FASB issued Statement of Financial Accounting Standards ("SOFAS") No. 132 (revised 2003), "Employers' Disclosures about Pensions and Other Postretirement Benefits". This standard requires additional detailed disclosures regarding pension plan assets, benefit obligations, cash flows, benefit costs and related information. With the exception of disclosures related to foreign plans, the new disclosures are required to be provided in annual statements of public entities with fiscal years ending after December 15, 2003. The Company adopted the new disclosure requirements for all plans as of December 31, 2003.

Effective December 31, 2003, the Company adopted the disclosure requirements of Emerging Issues Task Force ("EITF") Issue No. 03-01, "The Meaning of Other-Than-Temporary Impairment and Its Application to Certain Investments". Under the consensus, disclosures are required for unrealized losses on fixed maturity and equity securities accounted for under SFAS No. 115, "Accounting for Certain Investment in Debt and Equity Securities", and SFAS No. 124, "Accounting for Certain Investments Held by Not-for-Profit Organizations", that are classified as either available-for-sale or held-to-maturity. The disclosure requirements include quantitative information regarding the aggregate amount of unrealized losses and the associated fair value of the investments in an unrealized loss position, segregated into time periods for which the investments have been in an unrealized loss position. The consensus also requires certain qualitative disclosures about the unrealized holdings in order to provide additional information that the Company considered in concluding that the unrealized losses were not other-than-temporary. The recognition and impairment guidance of this

10.

Issue should be applied to other-than-temporary impairment evaluations in reporting periods beginning after June 15, 2004. Management is in the process of assessing the impact of adopting the recognition and measurement guidance of EITF Issue No. 03-01, but believes it will not have a material impact on the financial statements.

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. Management is in the process of assessing the impact of adopting SOP 03-3.

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. The adoption of SOP 03-1 had no impact on the Company’s consolidated 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.

11.

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 derivative to conform it to language used in 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 had no impact on the Company's consolidated financial statements.

In January 2003, the FASB issued Interpretation No. 46, Consolidation of Variable Interest Entities (²FIN 46²). FIN 46 requires certain variable interest entities to be consolidated by the primary beneficiary of the entity if the equity investors in the entity do not have sufficient equity at risk for the entity to finance its activities without additional subordinated financial support from other parties. FIN 46 is effective immediately for all new variable interest entities created or acquired after January 31, 2003. For variable interest entities entered into prior to February 1, 2003, FIN 46 is effective for the first interim or annual period beginning after June 15, 2003. In October 2003, the FASB issued FASB Staff Position (FSP) FIN 46-6, Effective Date of FASB Interpretation, No. 46 Consolidation of Variable Interest Entities. This FSP provides a deferral of interests held by public entities in a variable interest entity or potential variable interest entity until the end of the first interim or annual period after December 15, 2003, if (a) the variable interest entity was created before February 1, 2003 and (b) the public entity has not issued financial statements reporting the variable interest entity that was created before February 1, 2003, in accordance with FIN 46, other than in the disclosure required by FIN 46. The FSP is effective for financial statements issued after October 9, 2003. The adoption of FIN 46 for variable entities created after February 1, 2003 did not have an impact on the consolidated financial statement of the company as of December 31, 2003. The adoption of the provision of FSP FIN 46-6, which is effective for the Company on March 31, 2004, had no impact on the Company’s consolidated financial statements.

In November 2002, the FASB issued Interpretation No. 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees Including Indirect Guarantees of Indebtedness of Others (²FIN 45²). FIN 45 requires entities to establish liabilities for certain types of guarantees, and expands financial statement disclosures for others. Disclosure requirements under FIN 45 are effective for financial statements of annual periods ending after December 15, 2002 and are applicable to all guarantees issued by the guarantor subject to the provisions of FIN 45. The initial recognition and initial measurement provisions of FIN 45 are applicable on a prospective basis to guarantees issued or modified after December 31, 2002. The adoption of FIN 45 had no impact on the Company’s consolidated financial statements.

In October 2002, the FASB issued SFAS No.147, Acquisitions of Certain Financial Institutions (²SFAS 147²). 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.

12.

In August 2002, the FASB issued SFAS No.146, Accounting for Costs Associated with Exit or Disposal Activities (²SFAS 146²). The standard requires companies to recognize costs associated with exit or disposal activities when they are incurred rather than at the date of a commitment to an exit or disposal plan. Previous accounting guidance was provided by EITF 94-3, ²Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring)². SFAS 146 replaces EITF 94-3. The provisions of this statement are effective for exit or disposal activities that are initiated after December 31, 2002. The adoption of SFAS 146 did not have an impact on the Company¢s consolidated financial statements.

In October 2001, the FASB issued SFAS No.144, Accounting for the Impairment or Disposal of Long-Lived Assets ("SFAS 144"). SFAS 144 provides a single model for accounting for long-lived assets to be disposed of, by superceding SFAS No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of ("SFAS 121"), and the accounting and reporting provisions of Accounting Principles Board Opinion No.30, Reporting the Results of Operations - Reporting the Effects of Disposal of a Segment of a Business, and Extraordinary, Unusual and Infrequently occurring Events and Transactions ("APB 30"). Under SFAS 144, discontinued operations are measured at the lower of carrying value or fair value less cost to sell rather than on a net realizable value basis. Future operating losses relating to discontinued operations are also no longer recognized before they occur. SFAS 144 broadens the definition of a discontinued operation to include a component of an entity (rather than a segment of a business.) SFAS 144 also requires long-lived assets to be disposed of other than by sale to be considered held and used until disposed. SFAS 144 retains the basic provisions of (i) APB 30 regarding the presentation of discontinued operations in the income statement, (ii) SFAS 121 relating to recognition and measurement of impaired long-lived assets classified as held for sale. SFAS 144 was effective beginning January 1, 2002. The adoption of SFAS 144 by the Company did not have an impact on the Company's consolidated financial statements.

In July 2001, the Financial Accounting Standards Board issued Statements of Financial Accounting Standards ("SFAS") No. 141, "Business Combinations", and SFAS No. 142, "Goodwill and Other Intangible Assets.” SFAS No. 141 requires that all business combinations be accounted for under the purchase method only and that certain acquired intangible assets in a business combination be recognized as assets apart from goodwill. SFAS No. 142 requires that ratable amortization of goodwill be replaced with periodic tests of the goodwill's impairment and identifiable intangible assets other than goodwill be amortized over their useful lives. SFAS No. 141 is effective for acquisitions made after June 30, 2001. The provisions of SFAS No. 142 were effective for fiscal years beginning after December 15, 2001. Adoption of SFAS 141 and SFAS 142 did not have an impact on the Company's consolidated financial statements.

In March 1999, the National Association of Insurance Commissioners (“NAIC”) adopted the Codification of Statutory Accounting Principles (the “Codification”). The Codification, which is intended to standardize regulatory accounting and reporting to state insurance departments, was effective January 1, 2002. However, statutory accounting principles will continue to be established by individual state laws and permitted practices. The New York State Insurance Department ("NYSID") required adoption of the Codification with certain modifications, for the preparation of statutory financial statements, effective January 1, 2001. On October 1, 2002 NYSID modified its original adoption of Codification to allow for the recognition of Deferred Tax Assets (²DTA²) and Deferred Tax Liabilities (²DTL²), with certain restrictions. This change allowed the Insurance Company to recognize a net DTA of approximately $16.5 million at December 31, 2003 for statutory reporting purposes. The adoption of Codification by the NAIC and the Codification as modified by the NYSID, as currently interpreted, did not adversely affect statutory capital and surplus as of June 30, 2004.

13.

2. INVESTMENTS

There were no investments in any one issuer that aggregate 10% or more of Shareholder's Equity as of June 30, 2004.

The following information summarizes the components of net investment income:

		June 30, 2004 (in thousands)		June 30,2003 (in thousands)
Fixed maturities	$		136,035	$	124,402
Common stocks	317			94
Short‑term investments	121			1,756
Other investment income	32,635			12,726
	169,108			138,978

Less investment expenses	3,043			3,329

Net investment income	$		166,065	$	135,649

As of June 30, 2004 and 2003 there were thirty-two fixed maturity investments with an aggregate carrying value of $213.3 million and thirty-nine fixed maturity investments with an aggregate carrying value of $227.4 million respectively, in the accompanying balance sheet which were non-income producing. Eighteen of these fixed maturity investments in 2004 and eighteen in 2003 with an aggregate carrying value of $208.5, and $214.0 respectively, are defeased with U.S Treasuries in an amount sufficient to insure full payment of principal.

The following table presents the amortized cost and gross unrealized losses for securities where the estimated fair value had declined and remained below amortized cost at June 30, 2004:

	Less Than 12 Months		12 Months or More		Total
	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses	Fair Value	Unrealized Losses
Description of Securities			(in thousands)

US Treasury obligations and direct obligations of US Government Agencies	315,842	14,158	96,028	11,422	411,870	25,580
Corporate Bonds	728,474	33,235	498,172	108,481	1,226,646	141,716
Preferred Stocks	39,912	2,666	9,322	1,507	49,234	4,173
Subtotal Fixed Maturities	1,084,228	50,059	603,522	121,410	1,687,750	171,469
Common Stock	14,979	437	0	0	14,979	437
Total Temporarily Impaired Securities	1,099,207	50,496	603,522	121,410	1,702,729	171,906

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, 2004.

	Gross Unrealized Losses			% Of Total		Gross Unrealized Losses For Principal Protected Notes		% Of Total		Gross Unrealized Losses Net of Principal Protected Notes		% Of Total
						(in thousands)
Less than twelve months		50,059	29.19		563		.78		49,496		49.89
Twelve months or more		121,410	70.81		71,693		99.22		49,717		50.11

Total		171,469	100.00		72,256		100.00		99,213		100.00

14.

Approximately 59% of the securities with an unrealized loss for a period equal to or greater than twelve months are principal protected notes. This structure utilizes AAA collateral such as U.S Treasury Strips, in conjunction with a variable rate coupon. The AAA rated collateral accretes to par at maturity, defeasing the security and thereby insulating the holder from any negative credit events which might interfere with the repayment of principal.

The Company’s investments are primarily concentrated in a variety of fixed income securities that are exposed to a combination of credit risk and interest rate risk, each of which can impact fluctuations in overall market valuation. During the second quarter of 2004, the portfolio experienced a decline in market value caused by a significant rise in interest rates, as the 10-year Treasury yield rose from 3.84% on March 31, 2004 to 4.58% on June 30, 2004. This represented a decline in the market value of the benchmark 10-year Treasury of approximately 5¾ points or 5.7% of total value. The 30-year Treasury yield rose from 4.77% to 5.29% during the same period, representing a decline in market value of approximately 7.81 points or 7.17% of total value. Given the strength of the overall economic recovery and the announced policies of the U.S. Federal Reserve, the Company anticipates a gradual rise in interest rates over the coming quarters of 2004 and 2005. Federal Reserve policies will tend to have a greater impact on the short-end of the Treasury yield curve, and, as a result, we anticipate that the Treasury yield curve will flatten over time. This rise in overall interest rates may have a negative impact on the market valuation of the fixed income portfolio of the Insurance Company. The Company’s book value will generally increase when interest rates decrease and decrease when interest rates increase. The book value per share at June 30, 2004 and December 31, 2003 was $15.88 and $16.66, respectively, reflecting the change in interest rates.

3. NOTES PAYABLE

Notes payable at June 30, 2004 and 2003 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, 2004, unamortized costs were $1.0 million. The total principal is due on February 15, 2009. In addition, the Company had deferred losses of approximately $3.1 million recorded in accumulated other comprehensive income as of June 30, 2004, related to an interest rate lock agreement used to hedge the issuance of the Senior Notes. The Company reclassifies the deferred loss from a liability to accummulated other comprehensive income over the term of the notes. The Company expects to reclassify approximately $672,000 into earnings for the year 2004.

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, 2004, 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 in the amount of $50,000,000 and provides for interest on borrowings based on market indices. At June 30, 2004 and 2003 the Company had $50,000,000 and $50,000,000 outstanding, respectively. The line of credit was renewed on April 22, 2004 for a period of one year with The Bank of New York.

4. SHAREHOLDERS' EQUITY

During 2004, the Company's Board of Directors maintained the quarterly dividend rate of $.10 per share. The Company is authorized pursuant to a resolution of the Board of Directors to purchase 385,000 shares of common stock.

15.

COMPREHENSIVE INCOME (LOSS)

For the Six Months ended June 30, 2004	Pre Tax Amount	Tax (Expense)/ Benefit (in thousands)	After-Tax Amount
Net unrealized gains/(losses) on investment securities:

Net unrealized holding losses arising during year	(103,973)	(35,873)	(68,100)
Less: reclassification adjustment for gains
Realized in net income	12,702	4,382	8,320
Change related to deferred acquisition costs	16,010	5,523	10,487
Net unrealized investment losses	(75,261)	(25,968)	(49,293)

2003
Net unrealized gains on investment securities:

Net unrealized holding gains arising during year	204,227	61,268	142,959
Less: reclassification adjustment for losses
Realized in net income	(8,523)	(2,557)	(5,966)
Change related to deferred acquisition costs	(6,276)	(1,883)	(4,393)
Net unrealized investment gains	189,428	56,828	132,600

EMPLOYEE BENEFIT AND DEFERRED COMPENSATION PLANS

Components of Net Periodic Benefit Cost

	Six Months ended June 30,2004		Six Months ended June 30, 2003

Components of Net Periodic Benefit Cost
Service cost	$	0	$	347,056
Interest cost	338,542		376,844
Expected return on plan assets	(263,347)		(164,586)
Amortization of net (gain)/loss	62,649		88,498
Amortization of transition obligation	0		14,000
Net periodic benefit cost	$	137,844	$	661,812

Employer Contributions

The Company previously disclosed in its financial statements for the year ended December 31, 2003, that it expects to fully fund the plan to effect the expected termination of the plan during the second half of 2004 and estimates the requirement to fully fund the Plan, prior to termination, to be $2 million. As of February 18, 2004 the plan was closed to new entrants, accrual of any future benefits terminated and the plan was “frozen”. As of June 30, 2004, $ 4.33 million of contributions have been made.

16.

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 valuation allowance relates principally to investment write downs recorded for financial reporting purposes, which have not been recognized for income tax purposes, due to the uncertainty associated with their realizability for in

	June 30, 2004 (Unaudited)	December 31, 2003
ASSETS:
Investments:
Fixed maturities:
Available for sale at market (Cost of
$3,889,044 and $3,745,304, respectively)	$3,922,385	$3,890,407
Common stocks (Cost of $28,776 and
$31,271, respectively)	37,223	39,652
Mortgage loans	0	9,142
Real estate	415	415
Policy loans	18,008	18,262
Short-term investments	16,630	23,664
Other invested assets	336,554	323,139
Total Investments	4,331,215	4,304,681

Cash and cash equivalents	8,296	12,907
Accrued investment income	52,206	50,956
Amounts due from security transactions	711	1,196
Federal income tax recoverable	2,385	27,137
Deferred policy acquisition costs	126,220	108,713
Furniture and equipment, net	210	200
Amounts due from reinsurers	15,509	15,688
Other assets	4,748	5,094
Assets held in separate account	2,091	2,450
TOTAL ASSETS	$4,543,591	$ 4,529,022

LIABILITIES AND SHAREHOLDERS' EQUITY:
Liabilities:
Policy Liabilities:
Policyholders' account balances	$3,166,225	$ 3,092,872
Future policy benefits:
Annuity	653,277	646,958
Life and accident and Health	65,803	65,425
Other policy liabilities	6,876	6,193
Total Policy Liabilities	3,892,181	3,811,448


Short-term note payable	50,000	50,000
Notes Payable	100,000	100,000
Deferred federal income taxes	7,777	38,127
Deposits on policies to be issued	2,355	11,795
General expenses and taxes accrued	6,202	7,610
Other liabilities	16,987	18,827
Liabilities related to separate account	2,091	2,450
Total Liabilities	4,077,593	4,040,257

Shareholders' Equity:
Capital stock ($.01 par value; authorized
100,000,000 shares; issued and outstanding,
29,357,368 shares in 2004 and 29,334,668
shares in 2003	294	293
Accumulated other comprehensive gain	35,915	88,343
Retained earnings	429,789	400,129
Total Shareholders' Equity	465,998	488,765
TOTAL LIABILITIES AND SHAREHOLDERS'
EQUITY	$4,543,591	$ 4,529,022

The accompanying notes are an integral part of these Unaudited Consolidated
Financial Statements.

US Treasury obligations and direct obligations of US Government Agencies

Components of Net Periodic Benefit Cost

Components of Net Periodic Benefit Cost

Employer Contributions