SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
FOR FISCAL YEAR ENDED DECEMBER 31, 2001
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
Commission file number: 811-6268
SBM CERTIFICATE COMPANY
(Exact name of registrant as specified in its charter)
MARYLAND 52-2250397
(State or other Jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
5101 RIVER ROAD, SUITE 101, BETHESDA, MARYLAND 20816 (Address of
principal executive offices) (Zip Code)
301-656-4200
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act: NONE
Securities registered pursuant to Section 12(g) of the Act: NONE
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 of 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 [X] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part II of this Form 10-K or any amendment to this
Form 10-K. [_]
As of March 31, 2002, 250,000 shares of the registrant's common stock, $1 par
value, were outstanding. The registrant is a wholly-owned subsidiary and,
therefore, its common stock is not traded on a public market.
DOCUMENTS INCORPORATED BY REFERENCE
None.
EXPLANATORY NOTE
On July 19, 2000, SBM Certificate Company, a Maryland corporation
("SBM-MD") and SBM Certificate Company, a Minnesota corporation ("SBM-MN")
consummated a reverse merger transaction ("the Merger") pursuant to which SBM-MD
became the surviving corporation. As a result of the Merger and in accordance
with the provision of Accounting Principles Board Opinion No. 16, "Business
Combinations", SBM-MD will be considered the acquiring enterprise for financial
reporting purposes. Accordingly, this Form 10-K for the year ended December 31,
2001 presents SBM-MD's current financial information together with SBM-MN's
historical financial information.
TABLE OF CONTENTS
PART I
Item 1. Business ..................................................................3
Item 2. Properties.................................................................6
Item 3. Legal Proceedings..........................................................6
Item 4. Submission of Matters to a Vote of Security Holders........................6
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters. ...7
Item 6. Selected Financial Data....................................................7
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations..............................................8
Item 7A.Quantitative and Qualitative Disclosures About Market Risk................13
Item 8. Financial Statements and Supplementary Data...............................14
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure..............................................14
PART III
Item 10. Directors and Executive Officers of the Registrant.......................14
Item 11. Executive Compensation...................................................16
Item 12. Security Ownership of Certain Beneficial Owners and Management...........16
Item 13. Certain Relationships and Related Transactions...........................16
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K..........17
2
PART I
ITEM 1. BUSINESS
(a) GENERAL DEVELOPMENT OF BUSINESS
SBM Certificate Company (the "Company"), was incorporated in Maryland on
May 24, 2000. It is a wholly-owned subsidiary of State Bond & Mortgage Company,
L.L.C. ("State Bond"), a Maryland limited liability company. The Company's
executive offices are located at 5101 River Road, Suite 101, Bethesda, Maryland
20816; its telephone number is 301-656-4200.
On July 19, 2000, State Bond completed the purchase of all of the issued
and outstanding shares of common stock of SBM Certificate Company a Minnesota
corporation ("SBM MN"), from ARM Financial Group, Inc. ("ARM"), a Delaware
corporation (the "Acquisition"). State Bond effected the Acquisition as assignee
under a Stock Purchase Agreement, dated March 28, 2000, by and among 1st
Atlantic Guaranty Corporation ("1st Atlantic"), a Maryland corporation, and ARM
("Stock Purchase Agreement"). State Bond is wholly-owned by 1st Atlantic. The
Company and 1st Atlantic are face-amount certificate companies registered as
such under the Investment Company Act of 1940 ("1940 Act").
As part of the Acquisition transactions, SBM MN was merged into the
Company. The Company was formed for purposes of redomestication from Minnesota
to Maryland and had nominal assets when organized. The Company has succeeded SBM
MN, which was a registered face-amount certificate company, as the "registrant"
in all filings made by SBM MN under the Securities Act of 1933 ("1933 Act"),
Securities Exchange Act of 1934 ("1934 Act") and the 1940 Act.
The Company has assumed the face-amount certificate business of SBM MN. The
Company's predecessors have issued various series of face-amount certificates of
the fully paid and installment type since 1914. The Company has assumed the
obligations under SBM MN's outstanding face-amount certificates as a result of
the Acquisition.
On December 17, 2000, 1st Atlantic contributed its 100% ownership of
Atlantic Capital Funding Corporation ("ACFC") to the Company. ACFC is a mortgage
broker and lender in conventional and HUD mortgage programs as well as
commercial lending.
3
(b) FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS
The Company has two business segments, the investment company segment of
SBM and the mortgage company segment of ACFC. The consolidating financial
statements of the Company presented in Item 14 present the detailed financial
information of each separate business segment.
(c) NARRATIVE DESCRIPTION OF BUSINESS
General
The Company is a face-amount certificate company registered under the 1940
Act that issues and services fixed-rate face-amount certificates. A face-amount
certificate is an obligation of the issuer to pay a face, or principal, amount,
plus specified interest, to the holder of the certificate. The face-amount may
be paid at the end of a certificate's "guarantee period" or at its "maturity
date." Lesser amounts are paid at such times if all or part of an investment in
the certificate is withdrawn prior to maturity or the end of any guarantee
period. Interest may be paid quarterly or annually, or may be compounded.
The Company currently offers various series of single-payment investment
certificates with guarantee periods of three, five, seven and ten years,
respectively. Unless otherwise instructed by the holder, a certificate is
automatically renewed for another guarantee period of the same duration until
the certificate's maturity date. The certificates mature no later than 33 years
from the date they are issued. The Company's face-amount certificate operations
include issuance of single-payment certificates and the servicing of outstanding
single-payment and installment certificates, the investment of related funds,
and other related service activities.
The Company periodically declares the interest rates payable for a
certificate's guarantee period. The interest rate declared is applicable for the
entire guarantee period. The prevailing interest rates available on
interest-bearing instruments are a primary consideration in deciding upon the
interest rates declared by the Company. However, the Company has complete
discretion as to what interest rates it declares for the certificates. When a
certificate is renewed, the interest rates in effect for the succeeding
guarantee period may be greater or lesser than the rates in effect for the
expiring guarantee period.
SBM Certificate Company's gross income is derived primarily from the margin
between earnings on its investments and amounts paid or credited on its fixed
rate certificate liability ("investment spread"). The Company's net income is
determined by deducting investment and other expenses and federal income taxes.
The investment spread is affected principally by the Company's investment
decisions, general economic conditions, government monetary policy, the policies
of regulatory authorities that influence market interest rates, and the
Company's ability to respond to changes in such rates. Changes in market
interest rates may have a negative impact on its earnings. See "Item 7.
Management's Discussion and Analysis of Results of Operations and Financial
Condition".
4
The Company accrues liabilities, for which it maintains reserves for its
certificate obligations in accordance with the 1940 Act. In general, the Company
establishes its certificate liability monthly in an amount equal to the
certificates' surrender value. Under provisions of the 1940 Act, the Company is
permitted to invest its reserves only in assets that constitute "qualified
investments" and such other assets as the Securities and Exchange Commission
("SEC") may permit under the 1940 Act.
ACFC principally originates and brokers single-family residential mortgages
(conventional and FHA) for sale to investors. Loan underwriting approval from
investors is generally obtained, before closing with the borrower, to fund the
loans. ACFC is approved as a nonsupervised lender under the HUD Title II program
which has a required net worth based on a prescribed calculation. ACFC performs
underwriting and closing services for the Company, which acquires mortgage notes
from ACFC. ACFC may originate and process real estate loans directly as well as
offer its loan programs to outside mortgage brokers and bankers on a wholesale
basis. In the latter case, outside brokers will originate and process loans and
ACFC will underwrite and close the loans that meet its investment requirements.
ACFC may enter into agreements with selected outside mortgage brokers, bankers
and mortgage loan servicing companies to service certain types of mortgages that
may require special treatment because of various factors, such as the unique
features of the underlying real estate or the credit quality of the borrowers.
Management of Investments
Subject to the oversight of the Board of Directors, the Company's
management is responsible for selecting and managing the Company's securities
investments to ensure that the Company has, in cash or qualified investments,
assets having an aggregate value not less than that required by applicable law.
Qualified investments are defined as investments of a kind which life insurance
companies are permitted to invest in or hold under provisions of the Insurance
Code of the District of Columbia. Management also is responsible for placing
orders for the purchase and sale of the Company's securities investments with
brokers and dealers. The Company may in the future engage one or more investment
advisers to assist the Company in the management of its securities investments.
Sale of Certificates and Competition
The Company sells its certificates directly and through broker-dealers who
have entered into selling agreements with the Company. Sales also may be made to
members of affinity groups, including service organizations, non-profit
associations and other types of member organizations.
The Company's face-amount certificate business competes in general with
various types of individual savings products which offer a fixed rate of return
on investors' money, especially insurance, bank and thrift products. Some of
these other products are insured by governmental agencies or funds or private
third parties. The Company's certificates are not guaranteed or insured by any
governmental agency or fund or independent third party but are supported by
reserves required by law. The Company's ability to offer competitive interest
rates, attractive terms, and efficient service are its primary basis for meeting
competition. American Express Certificate Company (formerly IDS Certificate
Company) is the Company's main competitor in the issuance of face-amount
certificates.
5
Relationship with State Bond
The Company is an independent operating entity, but relies upon State Bond
and its affiliates to provide it with management, marketing and administrative
services, as well as personnel, for the conduct of the Company's business. See
"Item 13. Certain Relationships and Related Transactions."
Regulation
Like many financial service companies which offer investment opportunities
to the public, the Company is subject to governmental regulation. In particular,
the 1940 Act and rules issued by the SEC specify certain terms for face-amount
certificates, the method for calculating reserve liabilities on outstanding
certificates, the minimum amounts and types of investments to be deposited with
a qualified custodian to support such reserve liabilities, and a variety of
other restrictions. See Note B and Note M of Notes to Consolidating Financial
Statements of the Company for more detail on the policies of the Company related
to these regulations.
(d) FINANCIAL INFORMATION ABOUT FOREIGN AND DOMESTIC OPERATIONS AND EXPORT
SALES
The Company has no foreign operations.
ITEM 2. PROPERTIES
The Company's executive offices are located at 5101 River Road, Suite 101,
Bethesda, Maryland. The executive offices are the primary location for State
Bond's and the Company's investment, accounting, corporate accounting, marketing
activities and various support personnel. These offices are leased by State Bond
which makes them available to the Company under the Administrative Services
Agreement. The Company also maintains administrative offices at 125 Minnesota
Street, New Ulm, Minnesota.
ITEM 3. LEGAL PROCEEDINGS
The Company is not a party to, nor is any of its property the subject of,
any material pending legal proceedings, other than ordinary litigation routine
to its business.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
6
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
There is no public market or trading in the common stock of the Company.
All of the Company's 250,000 outstanding shares of common stock are owned by
State Bond.
Subject to its obligation to maintain investments in qualified assets as
required under Section 28(b) of the 1940 Act, the Company may pay dividends to
its parent as declared by the Company's Board of Directors. The Company,
including its predecessor, paid total dividends in 2001 and 2000 of $579,934 and
$6,513,805, respectively. The dividends in 2000 were primarily in connection
with the Acquisition, as discussed in Note A of the Notes to Consolidating
Financial Statements.
ITEM 6. SELECTED FINANCIAL DATA
The following table contains selected financial data of the Company for the
five years ended December 31, 2001. The financial data was derived from the
Company's audited financial statements. The reports of Reznick Fedder &
Silverman, independent auditors, with respect to the years ended December 31,
2001 and 2000, and of Ernst & Young LLP, independent auditors, with respect to
the year ended December 31, 1999, appear at page F-02 and F-03, respectively of
this Annual Report. The data should be read in conjunction with "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations" and the financial statements, related notes, and other financial
information included in this Annual Report.
7
YEAR ENDED DECEMBER 31
----------------------------------------------------------------
2001 2000 1999 1998 1997
-------- -------- -------- -------- --------
(In thousands, except per share data)
STATEMENT OF OPERATIONS DATA
Total investment income $ 1,515 $ 1,568 $ 2,292 $ 2,827 $ 3,922
Interest credited on certificate reserves (1,173) (1,523) (1,615) (2,063) (2,795)
Net investment spread 342 45 677 763 1,138
Total investment and other expenses (1,873) (528) (376) (576) (755)
Federal income tax (expense) benefit -- 621 102 (54) (124)
Net investment income (loss) (1,531) 138 409 134 259
Net other operating loss (68) -- -- -- --
Federal income tax (expense) benefit 288 -- -- -- --
Net investment and other operating income(losses) (1,311) 138 409 134 259
Net realized investment gains (losses) 69 (429) (373) (103) (164)
Net income (loss) (1,242) (291) 36 31 95
Earnings (loss) per share* (4.97) (1.16) 0.14 0.12 0.38
BALANCE SHEET DATA (END OF PERIOD)
Total assets $ 25,277 $ 22,259 $ 34,285 $ 39,354 $ 60,270
Total liabilities 24,109 21,527 30,117 34,068 45,127
Shareholder's equity 1,168 732 4,168 5,028 4,982
- ----------
* Earnings (loss) per share based on 250,000 shares issued and outstanding.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
General
The Company's predecessor, SBN MN, was incorporated in June 1990 to assume
the face-amount certificate business of SBM Company ("SBM") which began in 1914.
ARM purchased most of the assets of SBM in June 1995 and continued the issuance
of face-amount certificates through SBM MN, then a wholly-owned subsidiary of
ARM. As a result of the Acquisition, the Company has assumed the obligations of
SBM MN's outstanding face-amount certificates and currently offers various
series of single-payment face-amount certificates. The Company issues and
services fixed rate face-amount certificates and provides related services to
holders of the certificates. ACFC performs underwriting and closing services for
the Company, as well as other such services to outside brokers and bankers.
8
Financial Condition, Changes in Financial Condition and Results Of Operations
2001 compared with 2000
During 2001, total assets increased $3,018,243 from $22.3 million in 2000
to $25.3 million in 2001, while certificate liability increased $2,894,422 from
$20.9 million in 2000 to $23.8 million in 2001. The increase in total assets and
certificate liability is primarily due to certificate sales exceeding
certificate maturities, redemptions and early surrenders.
The Company's earnings are derived primarily from net investment income and
net other operating income. Net investment income is income earned from invested
assets less investment expenses and interest credited on certificate reserve
liability. Net other operating income is income earned from the origination of
loans in the mortgage broker business less operating expenses. Changes in net
investment income are largely due to changes in the rate of return on
investments. Changes in net other operating income is attributable to changes in
the volume of loans originated.
The Company had a net loss of $1,242,405 and $290,643 for the years ended
December 31, 2001 and 2000, respectively. The increase in net loss for 2001
stemmed mainly from the net investment loss before income tax of $1,530,959 for
the period ended December 31, 2001 as compared to net investment loss before
income tax of $483,116 for the period ended December 31, 2000. The increase in
net investment loss before income tax for 2001 was due mainly to an increase in
investment and other expenses.
Investment income (excluding realized investment gains and losses) in 2001
was $1,515,128 compared to investment income of $1,567,929 for 2000. Investment
income plus realized investment gains less realized investment losses represents
annualized investment yields of 8.17% and 4.10% on average cash and investments
of $19.4 million and $27.8 million for 2001 and 2000, respectively. The decrease
in investment income is attributable to a decrease in cash and investments being
held by the Company.
Net investment spread, which is the difference between investment income
and interest credited on certificate liability, was $342,576 for 2001 compared
to $44,760 in 2000. On an annualized yield basis, these amounts reflect net
investment spread for 2001 and 2000 of 1.53% and .18%, respectively.
Interest credited on certificate reserves for 2001 and 2000 was $1,172,552
and $1,523,169, respectively. These amounts represent annualized average rates
of interest credited of 5.24% and 5.97% on average certificate liability of
$22.4 million and $25.5 million for 2001 and 2000, respectively. The Company
monitors credited interest rates for new and renewal issues against competitive
products, such as bank certificates of deposit. Credited interest rate
adjustments (up or down) on new face-amount certificates are made by the Company
periodically, resulting in the overall decrease in the average crediting rate.
Investment and other expenses were $1,873,535 and $527,876 for 2001 and
2000, respectively. The increase in investment and other expenses was mainly the
result of an increase in the management fee paid to the Company's parent, State
Bond, and other expenses. The increase in the management fee was due to a
majority of the payment to State Bond in 2001 being made in the form of a
management fee, whereas, in 2000 the payment to State Bond was in the form of
both a management fee and dividends. Total dividends paid to cover management
services and management fee expense combined for 2001 and 2000 was $1,658,773
and $1,486,344, respectively. The increase in other expenses from $178,365 in
2000 to $605,073 in 2001 was mainly due to a new policy implemented after the
Acquisition as to the payment of certain direct expenses by the Company. Prior
to Acquisition, certain expenses that are currently paid by the Company were
paid by ARM.
9
Net other operating loss before income tax of $68,407 consists of the
mortgage broker operations of ACFC, which became a subsidiary of the Company in
December 2000. Other operating income of $866,901 is derived from loan
origination fees, gain on sale to investor and other processing and underwriting
loan fees relating to originating and brokering loans. Other operating expenses
of $935,308 consist of salaries and commissions paid in relation to originating
and brokering loans and other costs in operating the mortgage company.
Realized investment gains (losses) were $68,697 and ($428,582) for 2001 and
2000, respectively. Realized investment gains and losses are primarily
interest-rate related and attributable to the asset/liability management
strategies of the Company. Realized investment losses in 2000 were due to the
sale of securities as required of SBM MN in the Acquisition transaction. The
Company invests in a mixture of investments ranging from securities with fixed
maturities, mortgage notes and real estate tax lien certificates. The objective
of each investment is to provide reasonable returns while limiting liquidity and
credit risks.
In the event that the Company experiences higher than historical levels of
certificate surrenders, the Company might need to liquidate investments other
than in accordance with its normal asset liability management strategy and, as a
result, the Company could experience substantial realized investment losses.
2000 compared with 1999
The Company's earnings are derived primarily from the after tax-yield on
invested assets less investment expenses and interest credited on certificate
reserve liabilities. Changes in earnings' trends occur largely due to changes in
the rates of return on investments and the rates of interest credited to the
accounts of certificate holder. Likewise, changes in the make-up of taxable and
tax-advantaged investments will impact the Company's investment portfolio.
During 2000, total assets decreased $12,025,541, while certificate
liability decreased $9,190,058 and the deferred tax liability increased
$305,209. The decrease in total assets and the certificate liability is
primarily due to maturities, redemptions, early surrenders of certificates
exceeding certificate sales, and the certificate liability release. (See the
discussion in the last paragraph of this discussion of the results of operation
for 2000 compared to 1999 in this connection and Note B to the consolidating
financial statements of SBM Certificate Company and Subsidiary.) The $6,513,805
of dividends paid by SBM MN and SBM MD, resulting primarily from the
Acquisition, also significantly impacted total assets. The increase in the
deferred tax liability was mainly attributable to the new methodology for
calculating the certificate liability subsequent to the Acquisition offset by
the net operating loss carryforward deferred tax asset.
The Company had net income (loss) of ($290,643) and $36,143 for the years
ended December 31, 2000 and 1999, respectively. Net loss for 2000 stemmed from
the net investment income of $137,939 and net realized investment loss of
$428,582. Net income for 1999 consisted of net investment income of $408,623 and
net realized investment losses of $372,530.
Net investment income (excluding net realized investment gains and losses)
in 2000 was $137,939 compared to net investment income of $408,673 for 1999. The
net investment income in 2000 of $137,939 is comprised of net investment losses
before income taxes of $483,116 and a deferred income tax benefit of $621,055.
The net investment income in 1999 of $408,673 consists of net investment income
before income taxes of $306,660 and an income tax benefit of $102,013. The
decrease in net investment income before income taxes was a result of materially
diminished certificate sales and a decrease in investments held as a result of
redemptions of certain investments. Certificate sales generate the funds needed
to purchase various investments that can generate excess investment income over
expenses, as well as to serve as qualified investments.
10
Net investment spread, which is the difference between investment income
and interest credited on certificate liability, decreased to $43,761 during 2000
from $0.7 million in 1999. These amounts reflect net investment spread of 0.18%
and 1.20% during 2000 and 1999, respectively, between the Company's investment
yield on average cash and investments and the average rate credited on
certificate reserves.
The Company's investment income decreased to $1.6 million from $2.3 million
for 2000 and 1999, respectively. These amounts represent investment yields of
4.10% and 6.20% on average cash and investments of $27.8 million and $36.9
million for 2000 and 1999, respectively. The decrease in investment income is
primarily attributable to a lower amount of securities investments in 2000 as
compared to 1999.
Interest credited on certificate liability was $1.5 million and $1.6
million for 2000 and 1999, respectively. These amounts represent average rates
of 5.97% and 5.00% on average certificate liability of $25.5 million and $32.3
million for 2000 and 1999, respectively. The majority of the Company's
outstanding face-amount certificates are fixed-rate three-year contracts.
The Company monitors credited interest rates for new and renewal issues
against competitive products, mainly bank certificates of deposit. Credited
interest rate adjustments (up or down) on new certificates are made as the
Company deems necessary. New and renewal contracts issued during 2000 have
crediting rates that are generally lower than contracts that matured during that
period, resulting in the overall decrease in the average crediting rate.
Investment and other expenses were $527,876 and $369,825 for 2000 and 1999,
respectively. The increase in investment and other expenses is primarily
attributable to the costs relating to the Acquisition.
Net realized investment losses (net of gains) were $428,582 and $372,530
for 2000 and 1999, respectively. Realized investment losses for 2000 are due to
the sale of securities as required of SBM MN in the Acquisition transaction.
Other realized investment gains and losses were primarily interest-rate related
and attributable to the asset/liability management strategies of the Company.
Fixed maturities and equity securities (i.e., non-redeemable preferred stock)
classified as available-for-sale are sold during rising and falling interest
rate environments which can result in period-to-period swings in interest-rate
related realized investment gains and losses as well.
In the event that the Company experiences higher than historical levels of
certificate surrenders, the Company might need to liquidate investments other
than in accordance with its normal asset/liability management strategy and, as a
result, the Company could experience substantial realized investment losses.
Certificate liabilities decreased $9.2 million or 30.5% during 2000, as
maturities and surrenders exceeded sales and renewals. The decrease is
attributable to SBM MD's policy not to renew outstanding Certificates during
2000 and its inability to sell new Certificates after April 30, 2000. This was
due to SBM MN's decision not to update its prospectus for use in continuing the
offer and sale of Certificates after that date. The Acquisition did not close
until July 19, 2000, after which the Company filed amendments to the
registration statement that required review by the SEC. The Company began the
resumption of certificate sales in early 2001. For certificates reaching their
maturity date during 2000 and 1999, 34% and 66%, respectively, were renewed.
11
Asset Portfolio Review
The Company invests its assets in accordance with the provisions of the
1940 Act, which permits the investment of reserves only in cash or "qualified
investments." Qualified investments are investments of a kind which life
insurance companies may hold under the Insurance Code of the District of
Columbia, and other such assets as the SEC may permit under the 1940 Act. The
Company's investment policy is to invest reserves in a variety of investments
that diversify risk, provide a reasonable return on investment and allow for
liquidity consistent with the cash requirements of the Company. The Company's
three principal investment types as of December 31, 2001 are fixed maturity
securities, mortgage notes and real estate tax lien certificates. The Company
monitors its short-term liquidity needs to ensure that cash flow from
investments allows for the payment of all of its obligations due, including
expected cash outflow to certificate holders, with the goal of maintaining an
adequate level of liquidity for maturing face-amount certificates. In addition,
the investment strategy also is designed to provide protection of the investment
portfolio from adverse changes in interest rates.
The Company's investments in fixed maturity securities totaled $6,774,313
at December 31, 2001, 28.22% of the investment portfolio (60.58% at December 31,
2000). Fixed maturity investments were 100% investment grade at December 31,
2001. Investment grade securities are those classified as 1 or 2 by the National
Association of Insurance Commissioners, or where such classifications are not
available, securities are classified by a nationally recognized statistical
rating organization (i.e., Standard & Poor's Corporation's rating of BBB- or
above). As of December 31, 2001, the Company held no fixed maturity securities
that had defaulted on principal or interest payments. Fixed maturities include
mortgage-backed securities ("MBSs"), collateralized mortgage obligations
("CMOs") and asset-backed securities, which include pass-through securities.
MBSs and CMOs are subject to risks associated with prepayments of the underlying
mortgage loans. Prepayments cause these securities to have actual maturities
different from those expected at the time of purchase. The degree to which a
security is susceptible to either an increase or decrease in yield due to
prepayment speed adjustments is influenced by the difference between its
amortized cost and par, the relative sensitivity of the underlying mortgages
backing the assets to prepayments in a changing interest rate environment and
the repayment priority of the securities in the overall securitization
structure. Prepayment sensitivity is evaluated and monitored, giving full
consideration to the collateral characteristics such as weighted average coupon
rate, weighted average maturity and the prepayment history of the specific loan
pool.
Based on the provisions of Statement of Financial Accounting Standards
("SFAS") No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," the Company currently classifies its fixed maturity securities as
available-for-sale. Such securities are carried at fair value and changes in
fair value, net of deferred income taxes, are charged or credited directly to
shareholder's equity. During 2001, the change in unrealized gains, net of tax
increased by $4,657 resulting in an unrealized gain, net of tax at December 31,
2001 of $217,448. Unrealized gain net of tax at December 31, 2000 was $212,791.
Volatility in reported shareholder's equity occurs as a result of the
application of SFAS No. 115, which requires some assets to be carried at fair
value while other assets and all liabilities are carried at historical values.
As a result, adjusting the shareholder's equity for changes in the fair value of
the Company's fixed maturity securities without reflecting offsetting changes in
the value of the Company's liabilities or other assets creates volatility in
reported shareholder's equity but does not reflect the underlying economics of
the Company's business.
12
The Company's investments in residential and commercial real estate
mortgage notes receivable totaled $7,695,895 at December 31, 2001, 32.06% of the
investment portfolio. These real estate mortgage notes consist of $6,964,413 of
mortgage notes held for sale and $731,482 of mortgage notes held for investment.
The notes accrue interest at rates ranging from 8.0% to 14.5% per annum and are
secured by the underlying real property. The Company's intention is to sell the
mortgage notes held for sale to a buyer under certain favorable market
conditions and to hold the mortgage notes held for investment as a long-term
investment.
The Company's other significant investments are real estate tax lien
certificates. These certificates are comprised of delinquent real estate tax
bills purchased from municipalities. They accrue interest at the rate of 20% per
annum and are secured by a first lien on the property on which the tax is owed.
In all cases, the certificates are significantly over-collateralized by the
underlying property. As of December 31, 2001, the real estate tax lien
certificates had a balance of $2,917,063, 12.15% of the investment portfolio.
Liquidity and Financial Resources
As of December 31, 2001, the Company had $2.1 million of qualified assets
in excess of the minimum amount required by the 1940 Act and the rules and
regulations promulgated thereunder by the SEC, as computed in accordance with
the 1940 Act.
The primary liquidity requirement of the Company relates to its payment of
certificate maturities and surrenders and payment of its management fee. The
principal sources of cash to meet such liquidity requirements are investment
income and proceeds from maturities and redemptions of investments.
At December 31, 2001, cash and cash equivalents totaled $5.5 million, an
increase of $1.8 million from December 31, 2000. The Company's aim is to manage
its cash and cash equivalents position so as to satisfy short-term liquidity
needs. In connection with this management of cash and cash equivalents, the
Company may invest idle cash in short duration fixed maturities to capture
additional yield when short-term liquidity requirements permit.
Cash flows of ($1.2) million, $1.6 million, and $2.1 million were generated
from (used in) operating activities in 2001, 2000, and 1999, respectively. These
cash flows resulted principally from investment income, less management fees,
and commissions paid. Proceeds from sales, redemptions and maturities of
investments generated $9.5 million, $6.4 million, and $37.0 million in cash
flows during 2001, 2000, and 1999, respectively, which were offset by purchases
of investments of $7.4 million, $3.5 million, and $22.5 million, respectively.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Most of the Company's investments are represented by fixed maturity
securities (comprised of government and corporate bonds and mortgage-backed
securities), mortgage notes and real estate tax lien certificates. Managing
interest rates between those earned on the Company's investments and those paid
under the face-amount certificates is fundamental to the Company's investment
decisions. Both rates are sensitive to changes in the general level of interest
rates in the economy, as well as to competitive factors in the case of the
certificates.
Presently, the Company has a portion of its portfolio invested in real
estate loans, which includes $6.96 million of mortgage notes held for sale and
$.7 million of mortgage notes held for investment. Over time, it anticipates
increasing this segment of its investment portfolio with the view to enhancing
the Company's return on investment. Fluctuations in the value of the underlying
real estate represent the greatest risk factor for this investment strategy.
However, the Company will invest only in those loans that have a history of
producing income, are of high quality by
13
industry standards or have underlying properties that represent excellent values
and safety relative to the market. The mortgage notes must have a loan to value
ratio no higher than 75% for the investment to be a qualified asset as defined
by the provisions of the Insurance Code at the District of Columbia.
The Company also invests in real estate tax lien certificates, which have a
balance of $2.9 million at December 31, 2001. The greatest risk associated with
this investment is the time and costs of a foreclosure process when amounts
remain unpaid beyond the Company's aging policy. The risk is mitigated by the
Company's first priority lien on the property on which the tax is owed, and the
Company's general policy of securing these investments only with properties in
which the amount advanced by the Company to acquire the certificates is less
than 5% of the market value of the property that secures the investment.
The Company regularly analyzes interest rate sensitivity and the potential
impact of interest rate fluctuations based on a range of different interest rate
models. These provide "benchmarks" for assessing the impact on Company earnings
if rates moved higher or lower than the expected targets set in our investment
guidelines. The Company will continue to formulate strategies directed at
protecting earnings for the potential negative effects of changes in interest
rates.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The Company's financial statements begin on page F-02. Reference is made to
the Index to Financial Statements on page F-01 of this Annual Report. The
Company's supplementary financial information as required per regulation S-X
begins on page S-01.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information about the Company's directors and officers, including
their principal occupations for the past five years, is set out below. Members
of the Board who are considered "interested persons" of the Company under the
1940 Act are indicated by an asterisk (*). The Company's directors and officers,
other than directors who are not interested persons of the Company, serve in
such capacities without compensation. Officers are appointed annually at the
annual meeting of the Company's Board of Directors.
The individuals named below became officers and directors of the Company in
May 2000, upon the organization of the Company, except that Donald N. Briggs
became a director in August 2000, Eric M. Westbury became President of the
Company in December 2000, and Trey Stafford became an officer of the Company in
July 2001. Name and Age Principal Occupations During the Past Five Years
Positions
with Principal Occupations During the Past Five
Name and Age the Company Years
- ---------------------- ----------- --------------------------------------------------
John J. Lawbaugh (32)* Chairman of the Executive Vice President, 1st Atlantic Guaranty
Board, Chief Corporation (face-amount certificate company,
Executive President until December 2000); President, State
Officer, and Bond & Mortgage Company, L.L.C. (Since May 2000);
Treasurer prior to that, President, Atlantic Capital Funding
Corporation (commercial and residential mortgage
banking); President, Atlantic Pension & Trust
(private pension fund management).
14
Iraline G. Barnes (54) Director Special Counsel, Roseman & Colin (since 1999); Prior
to that, Senior Judge, DC Superior Court; Prior to
that, Vice President of Corporate Relations, Potomac
Electric Power Co.
Kumar Barve (43) Director Delegate to the State Senate, Maryland; Prior to that,
Accountant/Chief Financial Officer, Environmental
Management Services, Inc. (Hazardous Waste Disposal
and Environmental Consulting)
Donald N. Briggs (58) Director President, Principal Owner of Briggs Associates, Inc.
(Real Estate Appraisal and Consultants) since 1974.
President, Emmitsburg Business and Professional
Association. Director, County Family Planning Center,
Emittsburg, MD. Director, Catoctin Land Trust.
Nancy Hopkinson (60) Director Currently Retired (since 1996); prior to that, Teacher
and School Administrator, Montgomery County Public
Schools (Maryland)
Brian Murphy (58)* Director Partner, Griffin, Griffin, Tarby & Murphy, LLP (law
firm)
Marialice B. Williams (56) Director President of Risk Mitigation Strategists; Chairman,
D.C. Housing Finance Agency; Chairman, Advisory
Committee of WPFW (89.3FM) Radio; Prior to that,
Director, Capital Markets section of the Multifamily
Division of Federal National Mortgage Association.
(from 1989-1998)
Dia H. Snowden (40) Secretary Secretary, SBM Certificate Company, (since March
2002); Client Services Manager, SBM Certificate
Company, (since July 2000); prior to that, Corporate
Administrator, The Washington Development Group, Inc.
(1996-1999) (private real estate development and
management company).
Trey Stafford (28) Chief Financial Vice President of Finance and Accounting, State Bond
and Accounting and Mortgage, L.L.C. (since July 2001); Secretary of
Officer Board of Directors, ACFC (since December 2001); Audit
Manager/Senior, Reznick Fedder & Silverman, CPA's
(September 1997-July 2001); Staff Accountant, Charles
E. Smith Residential Realty, (September 1996-1997).
Eric M. Westbury (38) President President, SBM Certificate Company, (since December
2000, Executive Vice President before that from
November 1999); Executive Vice President, 1st Atlantic
Guaranty Corporation (since November 1999); prior to
that, President and Chief Operating Officer of The
Washington Development Group (private real estate
development and management company), from September
1997 through November 1999. Prior to that,
Vice-President, Market Executive (commercial and
retail banking) First Union National Bank, Washington,
DC.
15
Board of Directors
The Board of Directors is responsible for the overall management of the
Company's business. Directors are elected annually at the Company's meeting of
shareholders. Each Director who is not an interested person of the Company
receives an annual retainer of $500, plus a $750 fee for each regular or special
Board meeting he or she attends. The Directors also receive reimbursement for
their expenses incurred in attending any meeting of the Board. The Board
generally meets semi-annually.
Committees of the Board of Directors
The Company has an Audit Committee. The duties of the Audit Committee and
its present membership are as follows:
Audit Committee: The members of the Audit Committee consult with the
Company's independent auditors as the auditors deem it desirable, and meet with
the Company's independent auditors at least once annually to discuss the scope
and results of the annual audit of the Company and such other matters as the
Committee members deem appropriate or desirable. Directors Barnes, Barve and
Williams are members of the Audit Committee.
ITEM 11. EXECUTIVE COMPENSATION
The Company's directors and officers, other than directors who are not
interested persons of the Company, serve in such capacities without
compensation. See "Item 13. Certain Relationships and Related Transactions,"
below.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The Company is a wholly-owned subsidiary of State Bond, which, in turn, is
wholly-owned by 1st Atlantic. John J. Lawbaugh, an officer and director of the
Company, is the controlling shareholder of 1st Atlantic.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to an Amended and Restated Administrative Services Agreement dated
as of July 1, 2001 (the "Administrative Services Agreement"), State Bond
provides various administrative services to the Company. Under the terms of that
Agreement, State Bond makes available certain of its property, equipment and
facilities to the Company for use in its business operations. State Bond also
provides the Company with certain administrative and special services, including
personnel and furnishes or otherwise makes available accounting services to the
Company. The annual charge to the Company for the services and facilities
provided by State Bond is 1% of the Company's average certificate liability
balances, or an amount not to exceed $2.5 million. The charge will be determined
monthly by State Bond and Company management. At no time, however, may the
charge cause the Company to have assets of less than the total of the qualified
investments and capital stock required under the 1940 Act. State Bond waived its
fees due under the original Administrative Services Agreement dated July 1, 2000
through September 30, 2000. For the last quarter of 2000 a fee of $112,223 was
charged to the Company, of which $40,289 remained payable at December 31, 2000.
During 2001, a fee totaling $1,078,839 was charged and $1,119,128 was paid by
the Company to State Bond. State Bond's parent, 1st Atlantic, is controlled by
John J. Lawbaugh.
In connection with the Acquisition, certain dividend payments were made by
the Company to its former, and to its current, parent as described in Note A of
the Notes to Consolidating Financial Statements. Also, from time-to-time the
Company makes dividend payments to State Bond, which, in turn, may make dividend
payments to 1st Atlantic, State Bond's parent. During 2001, the Company paid
$579,934 of cash dividends to State Bond.
16
See Note L of Notes to Consolidating Financial Statements with respect to
the contribution of two mortgage notes as additional paid-in capital made by
State Bond to the Company on September 30, 2001.
ITEM 14 EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) DOCUMENTS FILED AS PART OF THIS REPORT
1. FINANCIAL STATEMENTS.
See financial statements index on page F-01 for a listing of financial
statements and related reports of independent auditors included in this report.
2. FINANCIAL STATEMENT SCHEDULES
The following financial statement schedules of the Company and the related
Report of Independent Auditors are incorporated herein as follows:
Report of Independent Auditors
Schedule I Investment in Securities of Unaffiliated
Issuers-December 31, 2001
Schedule II Investments in and Advances to Affiliates and Income
Thereon - December 31, 2001
Schedule III Mortgage loans on real estate and interest earned on
mortgages - December 31, 2001
Schedule V Qualified Assets on Deposit-December 31, 2001
Schedule VI Certificate Reserves-Year Ended December 31, 2001
Schedule VII Valuation and Qualifying Accounts-December 31, 2001
17
Schedules required by Article 6 of Regulation S-X for face-amount certificate
investment companies other than those listed are omitted because they are not
required, are not applicable, or equivalent information has been included in the
financial statements and notes thereto, or elsewhere herein.
3. EXHIBITS
NUMBER DESCRIPTION
(2) Stock Purchase Agreement dated March 28, 2000 by and among 1st
Atlantic Guaranty Corporation, SBM Certificate Company, and ARM
Financial Group Exhibits omitted), incorporated by reference to
Exhibit (2) to form 8-K dated March 28, 2000 of 1st Atlantic
Guaranty Corporation (File No. 333-41361).
(3)(a) Articles of Incorporation of the Company, incorporated by
reference to Exhibit (3)(a) of Post-effective Amendment No. 11 to
Registration Statement No. 33-38066 filed on September 28, 2000.
(3)(a) (i) Certificate of Correction of Articles of Incorporation of
the Company incorporated by reference to Exhibit (3)(a) of
Post-effective Amendment No. 13 to Registration Statement No.
33-38066 filed on January 2, 2001.
(3)(b) By-Laws of the Company incorporated by reference to Exhibit
(3)(b) of Post-effective Amendment No. 11 to Registration
Statement No. 33-38066 filed on September 28, 2000.
(4)(a) Form of Application, incorporated by reference to Exhibit (4)(a)
of Post-effective Amendment No. 11 to Registration Statement No.
33-38066 filed on September 28, 2000
(4)(b) Form of Account Statement, incorporated by reference to Exhibit
(4)(a) of Post-effective Amendment No. 11 to Registration
Statement No. 33-38066 filed on September 28, 2000.
(10)(a) Amended and Restated Administrative Services Agreement dated as
of the 1st day of July, 2001, by and between the Company and
State Bond & Mortgage Company, L.L.C.
(10)(b) Custody Agreement, as amended and supplemented, between the
Company (as successor to SBM Certificate Company (Minnesota)) and
First Trust National Association (now U.S. Bank Trust N.A.) dated
December 20, 1990, incorporated by reference to Exhibit 10(b) to
Form S-1 Registration Statement No. 33-38066 filed on January 2,
1991.
(21) Subsidiary
(24) Powers of Attorney
18
(b) REPORTS ON FORM 8-K
No Current Report on Form 8-K was filed by the Company covering an event
during 2001. No amendments to previously filed Form 8-K were filed during 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this amended report to be signed on
its behalf by the undersigned, thereunto duly authorized, in Bethesda, Maryland,
on this 11th day of April, 2002.
SBM Certificate Company
By: /s/ Eric M. Westbury
-----------------------
Eric M. Westbury
President
Pursuant to the requirements of the Securities Exchange Act of 1934, this
amended report has been signed by the following persons in the capacities and on
the dates indicated:
SIGNATURE CAPACITY DATE
- --------- -------- ----
/s/ John J. Lawbaugh Chairman of the Board, Treasurer, and April 11, 2002
- ---------------------- Director (Principal Executive Officer)
John J. Lawbaugh
/s/ Trey Stafford Chief Financial and Accounting Officer April 11, 2002
- ----------------------
Trey Stafford
/s/ Iraline G. Barnes
- ---------------------- Director
Iraline G. Barnes
- ---------------------- Director
Kumar Barve
- --------------------- Director
Donald N. Briggs
19
*
- ---------------------- Director
Nancy Hopkinson
*
- ---------------------- Director
Brian Murphy
*
- ---------------------- Director
Marialice B. Williams
*By /s/ John L. Lawbaugh
--------------------
John L. Lawbaugh
Attorney-in-fact
April 11, 2002
20
INDEX TO FINANCIAL STATEMENTS
PAGE
----
INDEPENDENT AUDITORS' REPORT F-02
REPORT OF INDEPENDENT AUDITORS F-03
FINANCIAL STATEMENTS
CONSOLIDATING BALANCE SHEETS AS OF DECEMBER 31, 2001 AND 2000 F-04
CONSOLIDATING STATEMENTS OF OPERATIONS AND
COMPREHENSIVE INCOME (LOSS) FOR YEAR ENDED DECEMBER 31, 2001 AND 2000 F-06
STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS FOR THE YEAR
ENDED DECEMBER 31, 1999 F-08
CONSOLIDATING STATEMENTS OF SHAREHOLDER'S EQUITY FOR YEAR ENDED
DECEMBER 31, 2001 AND 2000 F-09
STATEMENT OF SHAREHOLDER'S EQUITY FOR YEAR ENDED DECEMBER 31, 1999 F-10
CONSOLIDATING STATEMENTS OF CASH FLOWS FOR YEARS ENDED DECEMBER 31, 2001
AND 2000 F-11
STATEMENT OF CASH FLOWS FOR YEAR ENDED DECEMBER 31, 1999 F-14
NOTES TO CONSOLIDATING FINANCIAL STATEMENTS FOR YEAR ENDED DECEMBER 31, 2001 F-16
SUPPLEMENTAL SCHEDULES
SCHEDULE I - INVESTMENTS IN SECURITIES OF UNAFFILIATED ISSUERS S-01
SCHEDULE II - INVESTMENTS IN AND ADVANCES TO AFFILIATES AND INCOME THEREON S-03
SCHEDULE III - MORTGAGE LOANS ON REAL ESTATE AND INTEREST EARNED ON MORTGAGES S-04
SCHEDULE V - QUALIFIED ASSETS ON DEPOSIT S-05
SCHEDULE VI - CERTIFICATE RESERVES S-06
SCHEDULE VII - VALUATION AND QUALIFYING ACCOUNTS S-12
F-01
INDEPENDENT AUDITORS' REPORT
To the Shareholder and Board of Directors
SBM Certificate Company
We have audited the accompanying consolidating balance sheets of SBM
Certificate Company and Subsidiary as of December 31, 2001 and 2000, and the
related consolidating statements of operations and comprehensive income (loss),
shareholder's equity, and cash flows for the years then ended. These
consolidating financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidating
financial statements based on our audit. The financial statements of SBM
Certificate Company (formerly SBM Certificate Company, a Minnesota Corporation)
as of December 31, 1999, were audited by other auditors whose report, dated
March 31, 2000, except for the last paragraph of note A, as to which the date is
July 19, 2000, expressed an unqualified opinion.
We conducted our audits in accordance with auditing standards generally
accepted in the United States of America. Those standards require that we plan
and perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidating financial statements referred to above
present fairly, in all material respects, the financial position of SBM
Certificate Company and Subsidiary at December 31, 2001 and 2000, and the
results of its operations and its cash flows for the years then ended, in
conformity with accounting principles generally accepted in the United States of
America. Also, in our opinion, the supplemental financial statement schedules,
when considered in relation to the basic consolidating financial statements
taken as a whole, present fairly in all material respects the information set
forth therein.
/s/ Reznick Fedder & Silverman
Bethesda, Maryland
February 28, 2002
F-02
REPORT OF INDEPENDENT AUDITORS
Board of Directors
SBM Certificate Company (Minnesota)
We have audited the accompanying statement of operations, shareholder's equity
and cash flows of SBM Certificate Company (Minnesota) for the year ended
December 31, 1999. These financial statements are the responsibility of the
Company's management. Our responsibility is to express an opinion on these
financial statements based on our audit.
We conducted our audit in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the results of SBM Certificate Company's (Minnesota)
operations and its cash flows for the year ended December 31, 1999, in
conformity with accounting principles generally accepted in the United States.
/s/ Ernst & Young LLP
Louisville, Kentucky
March 31, 2000
Except for the second paragraph of Note A, as to which the date is
July 19, 2000
F-03
SBM Certificate Company and Subsidiary
CONSOLIDATING BALANCE SHEET
December 31, 2001
SBM Certificate Atlantic Capital Eliminating
Company Funding Corp. Entries Totals
-------------- -------------- -------------- --------------
Qualified assets
Cash and investments
Fixed maturities, available-for-sale, at fair value
(amortized cost: $6,440,016) $ 6,774,313 $ -- $ -- $ 6,774,313
Mortgage notes held for sale 6,493,991 470,422 -- 6,964,413
Mortgage notes held for investment 378,750 352,732 -- 731,482
Real estate tax lien certificates 2,917,063 -- -- 2,917,063
Escrows 608,037 -- -- 608,037
Certificate loans 98,137 -- -- 98,137
Cash and cash equivalents 4,676,654 861,440 -- 5,538,094
-------------- -------------- -------------- --------------
Total cash and investments 21,946,945 1,684,594 -- 23,631,539
-------------- -------------- -------------- --------------
Receivables
Dividends and interest 369,046 3,848 -- 372,894
-------------- -------------- -------------- --------------
Total receivables 369,046 3,848 -- 372,894
-------------- -------------- -------------- --------------
Total qualified assets 22,315,991 1,688,442 -- 24,004,433
Other assets
Related party receivable 80,608 16,744 (49,565) 47,787
Fixed assets, net of accumulated depreciation of $20,657 185,788 18,818 -- 204,606
Investment in subsidiary 1,619,007 -- (1,619,007) --
Goodwill, net of accumulated amortization of $61,686 591,463 -- -- 591,463
Deferred acquisition costs 420,093 -- -- 420,093
Other assets 5,815 3,404 -- 9,219
-------------- -------------- -------------- --------------
Total assets $ 25,218,765 $ 1,727,408 $ (1,668,572) $ 25,277,601
============== ============== ============== ==============
Liabilities
Statutory certificate liability $ 21,311,350 $ -- $ -- $ 21,311,350
Additional certificate liability 2,509,700 -- -- 2,509,700
Accounts payable and other liabilities 228,595 36,582 -- 265,177
Related party payable 957 71,819 (49,565) 23,211
-------------- -------------- -------------- --------------
Total liabilities 24,050,602 108,401 (49,565) 24,109,438
-------------- -------------- -------------- --------------
Shareholder's equity
Common stock, $1 par value; 10,000,000 shares
authorized; 250,000 shares issued and outstanding 250,000 -- -- 250,000
Common stock, $2 par value; 10,000 shares
authorized; 10,000 shares issued and outstanding -- 20,000 (20,000) --
Additional paid-in capital 3,930,141 1,621,481 (1,621,481) 3,930,141
Accumulated comprehensive income, net of taxes 217,448 -- -- 217,448
Retained earnings (deficit) (3,229,426) (22,474) 22,474 (3,229,426)
-------------- -------------- -------------- --------------
Total shareholder's equity 1,168,163 1,619,007 (1,619,007) 1,168,163
-------------- -------------- -------------- --------------
Total liabilities and shareholder's equity $ 25,218,765 $ 1,727,408 $ (1,668,572) $ 25,277,601
============== ============== ============== ==============
See accompanying summary of accounting policies and notes to consolidating
financial statements
F-04
SBM Certificate Company and Subsidiary
CONSOLIDATING BALANCE SHEET
December 31, 2000
SBM Certificate Atlantic Capital Eliminating
Company Funding Corp. Entries Totals
-------------- -------------- -------------- --------------
Qualified assets
Cash and investments
Investments in securities of unaffiliated issuers
Fixed maturities, available-for-sale, at fair value
(amortized cost: $12,654,435) $ 13,001,000 $ -- $ -- $ 13,001,000
Equity securities, at fair value (cost: $200,663) 200,663 -- -- 200,663
Mortgage notes held for sale 2,816,735 273,883 -- 3,090,618
Mortgage notes held for investment 375,000 352,732 -- 727,732
Escrows 250,000 -- -- 250,000
Certificate loans 110,069 -- -- 110,069
Cash and cash equivalents 2,715,502 1,000,891 -- 3,716,393
-------------- -------------- -------------- --------------
Total cash and investments 19,468,969 1,627,506 -- 21,096,475
-------------- -------------- -------------- --------------
Receivables
Dividends and interest 99,421 -- -- 99,421
Escrow receivable 266,482 -- -- 266,482
-------------- -------------- -------------- --------------
Total receivables 365,903 -- -- 365,903
-------------- -------------- -------------- --------------
Total qualified assets 19,834,872 1,627,506 -- 21,462,378
Other assets
Related party receivable -- 1,000 (1,000) --
Fixed assets 68,003 69 -- 68,072
Investment in subsidiary 1,572,958 -- (1,572,958) --
Goodwill, net of accumulated amortization of $18,143 635,006 -- -- 635,006
Deferred acquisition costs 80,436 -- -- 80,436
Other assets 13,466 -- -- 13,466
-------------- -------------- -------------- --------------
Total assets $ 22,204,741 $ 1,628,575 $ (1,573,958) $ 22,259,358
============== ============== ============== ==============
Liabilities
Certificate liability $ 20,926,628 $ -- $ -- $ 20,926,628
Accounts payable and other liabilities 239,743 2,197 -- 241,940
Related party payable 1,000 53,420 (1,000) 53,420
Deferred tax liability 305,209 -- -- 305,209
-------------- -------------- -------------- --------------
Total liabilities 21,472,580 55,617 (1,000) 21,527,197
-------------- -------------- -------------- --------------
Shareholder's equity
Common stock, $1 par value; 10,000,000 shares
authorized; 250,000 shares issued and outstanding 250,000 -- -- 250,000
Common stock, $2 par value; 10,000 shares
authorized; 10,000 shares issued and outstanding -- 20,000 (20,000) --
Additional paid-in capital 1,676,457 1,553,957 (1,553,957) 1,676,457
Accumulated comprehensive income, net of taxes 212,791 -- -- 212,791
Retained earnings (deficit) (1,407,087) (999) 999 (1,407,087)
-------------- -------------- -------------- --------------
Total shareholder's equity 732,161 1,572,958 (1,572,958) 732,161
-------------- -------------- -------------- --------------
Total liabilities and shareholder's equity $ 22,204,741 $ 1,628,575 $ (1,573,958) $ 22,259,358
============== ============== ============== ==============
See accompanying summary of accounting policies and notes to consolidating
financial statements
F-05
SBM Certificate Company and Subsidiary
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Year ended December 31, 2001
SBM Certificate Atlantic Capital Eliminating
Company Funding Corp. Entries Totals
-------------- -------------- -------------- --------------
Investment income
Interest and dividend income $ 910,395 $ 39,653 $ -- $ 950,048
Other investment income 10,060 -- -- 10,060
Loss from investment in subsidiary (21,475) -- 21,475 --
Mortgage interest income 547,200 7,820 -- 555,020
-------------- -------------- -------------- --------------
Total investment income 1,446,180 47,473 21,475 1,515,128
-------------- -------------- -------------- --------------
Investment and other expenses
Management and investment advisory fees 1,078,839 -- -- 1,078,839
Deferred acquisition cost amortization and
renewal commissions 125,422 -- -- 125,422
Amortization of goodwill 43,543 -- -- 43,543
Depreciation expense 20,117 541 -- 20,658
Other expenses 605,073 -- -- 605,073
-------------- -------------- -------------- --------------
Total investment and other expenses 1,872,994 541 -- 1,873,535
-------------- -------------- -------------- --------------
Interest credited on certificate liability 1,172,552 -- -- 1,172,552
-------------- -------------- -------------- --------------
Net investment loss before income taxes (1,599,366) 46,932 21,475 (1,530,959)
-------------- -------------- -------------- --------------
Other operating income
Origination fee income -- 421,449 -- 421,449
Gain on sale to investor -- 378,034 -- 378,034
Other loan fee income -- 67,418 -- 67,418
-------------- -------------- -------------- --------------
Total other operating income -- 866,901 -- 866,901
-------------- -------------- -------------- --------------
Other operating expenses
Salaries and commissions -- 651,311 -- 651,311
Other expenses -- 283,997 -- 283,997
-------------- -------------- -------------- --------------
Total other operating expenses -- 935,308 -- 935,308
-------------- -------------- -------------- --------------
Net other operating loss before income taxes -- (68,407) -- (68,407)
-------------- -------------- -------------- --------------
Net investment and other operating loss before income taxes (1,599,366) (21,475) 21,475 (1,599,366)
Deferred income tax benefit 288,264 -- -- 288,264
-------------- -------------- -------------- --------------
Net investment and other operating income (loss) (1,311,102) (21,475) 21,475 (1,311,102)
-------------- -------------- -------------- --------------
Realized investment gains 68,697 -- -- 68,697
Income tax expense on realized investment gains -- -- -- --
-------------- -------------- -------------- --------------
Net realized investment gains 68,697 -- -- 68,697
-------------- -------------- -------------- --------------
Net loss (1,242,405) (21,475) 21,475 (1,242,405)
Other comprehensive income (loss):
Unrealized gains on available-for-sale
securities, net of taxes
Net unrealized gain 4,657 -- -- 4,657
-------------- -------------- -------------- --------------
Net comprehensive loss $ (1,237,748) $ (21,475) $ 21,475 $ (1,237,748)
============== ============== ============== ==============
See accompanying summary of accounting policies and notes to consolidating
financial statements
F-06
SBM Certificate Company and Subsidiary
CONSOLIDATING STATEMENT OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)
Year ended December 31, 2000
SBM Certificate Atlantic Capital Eliminating
Company Funding Corp. Entries Totals
-------------- -------------- -------------- --------------
Investment income
Interest and dividend income from securities $ 1,474,281 $ -- $ -- $ 1,474,281
Other investment income 56,673 -- -- 56,673
Loss from investment in subsidiary (999) -- 999 --
Mortgage interest income 36,975 -- -- 36,975
-------------- -------------- -------------- --------------
Total investment income 1,566,930 -- 999 1,567,929
-------------- -------------- -------------- --------------
Investment and other expenses
Management and investment advisory fees 180,923 -- -- 180,923
Deferred acquisition cost amortization and
renewal commissions 150,445 -- -- 150,445
Amortization of goodwill 18,143 -- -- 18,143
Other expenses 177,366 999 -- 178,365
-------------- -------------- -------------- --------------
Total investment and other expenses 526,877 999 -- 527,876
-------------- -------------- -------------- --------------
Interest credited on certificate liability 1,523,169 -- -- 1,523,169
-------------- -------------- -------------- --------------
Net investment loss before income taxes (483,116) (999) 999 (483,116)
Deferred income tax benefit 621,055 -- -- 621,055
-------------- -------------- -------------- --------------
Net investment income (loss) 137,939 (999) 999 137,939
-------------- -------------- -------------- --------------
Realized investment losses (428,582) -- -- (428,582)
Income tax expense on realized investment losses -- -- -- --
-------------- -------------- -------------- --------------
Net realized investment losses (428,582) -- -- (428,582)
-------------- -------------- -------------- --------------
Net loss (290,643) (999) 999 (290,643)
Other comprehensive income (loss):
Unrealized gains on available-for-sale
securities, net of taxes
Net unrealized gain 502,906 -- -- 502,906
-------------- -------------- -------------- --------------
Total comprehensive income (loss) $ 212,263 $ (999) $ 999 $ 212,263
============== ============== ============== ==============
See accompanying summary of accounting policies and notes to consolidating
financial statements
F-07
SBM Certificate Company
STATEMENT OF OPERATIONS AND COMPREHENSIVE LOSS
Year ended December 31, 1999
Investment income
Interest income from securities $ 2,261,957
Other investment income 29,602
-----------
Total investment income 2,291,559
-----------
Investment and other expenses
Management and investment advisory fees 154,042
Deferred acquisition cost amortization and renewal commissions 193,973
Real estate expenses 2,610
Other expenses 19,200
-----------
Total investment and other expenses 369,825
-----------
Interest credited on certificate liability 1,615,074
-----------
Net investment income before income taxes 306,660
Income tax benefit 102,013
-----------
Net investment income 408,673
-----------
Realized investment losses (470,507)
Income tax benefit on realized investment losses 97,977
-----------
Net realized investment losses (372,530)
-----------
Net income $ 36,143
===========
Other comprehensive loss:
Unrealized loss on available-for-sale securities
Unrealized holding loss in current year $ (895,970)
Income tax --
-----------
Net unrealized loss during period (895,970)
-----------
Net other comprehensive loss $ (859,827)
===========
See accompanying summary of accounting policies and notes to consolidating
financial statements
F-08
SBM Certificate Company and Subsidiary
CONSOLIDATING STATEMENTS OF SHAREHOLDER'S EQUITY
Years ended December 31, 2001 and 2000
SBM CERTIFICATE COMPANY*
------------------------------------------------------------------------------------
Accumulated
Common Additional Other Com- Total
Stock Paid-in prehensive Accumulated Shareholder's
Shares Amount Capital Income (Loss) Deficit Equity
---------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 1999 250,000 $ 250,000 $ 3,050,000 $ (825,522) $ 1,693,735 $ 4,168,213
Net loss - SBM-MN -- -- -- -- (429,447) (429,447)
Changes in net unrealized gains (losses)
on available-for-sale securities, net of tax -- -- -- 290,115 -- 290,115
Dividends paid (3,708,384) (3,708,384)
Sale of SBM-MN as a reverse merger
transaction (July 19, 2000) -- (250,000) (3,050,000) 535,407 2,444,096 (320,497)
---------- ----------- ----------- ----------- ----------- -----------
Balance at July 19, 2000 -- -- -- -- -- --
Issuance of common stock 250,000 250,000 -- -- -- 250,000
Additional paid-in capital -- -- 1,102,500 -- -- 1,102,500
Contribution of common stock -- -- 573,957 -- -- 573,957
Changes in net unrealized gains (losses)
on available-for-sale securities, net of tax -- -- -- 212,791 -- 212,791
Retained earnings (deficit):
Dividends paid, net -- -- -- -- (2,805,421) (2,805,421)
Certificate liability release, net of tax -- -- -- -- 1,259,530 1,259,530
Net loss since Acquisition -- -- -- -- 138,804 138,804
---------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2000 250,000 250,000 1,676,457 212,791 (1,407,087) 732,161
Additional paid-in capital -- -- 2,253,684 -- -- 2,253,684
Changes in net unrealized gains (losses)
on available-for-sale securities, net of tax -- -- -- 4,657 -- 4,657
Retained earnings (deficit):
Dividends paid, net -- -- -- -- (579,934) (579,934)
Net loss -- -- -- -- (1,242,405) (1,242,405)
---------- ----------- ----------- ----------- ----------- -----------
Balance at December 31, 2001 250,000 $ 250,000 $ 3,930,141 $ 217,448 $(3,229,426) $ 1,168,163
========== =========== =========== =========== =========== ===========
ATLANTIC CAPITAL FUNDING CORPORATION
--------------------------------------------------------------------------------------------
Total
Common Additional Accum- Total Consolidating
Stock Paid-in ulated Shareholder's Eliminating Shareholder's
Shares Amount Capital Deficit Equity Entries Equity
--------- --------- ---------- --------- ---------- ----------- -----------
Balance at December 31, 1999 -- $ -- $ -- $ -- $ -- $ -- $ 4,168,213
Net loss - SBM-MN -- -- -- -- -- (429,447)
Changes in net unrealized gains (losses)
on available-for-sale securities,
net of tax -- -- -- -- -- -- 290,115
Dividends paid (3,708,384)
Sale of SBM-MN as a reverse merger
transaction (July 19, 2000) -- -- -- -- -- -- (320,497)
--------- --------- ---------- --------- ---------- ----------- -----------
Balance at July 19, 2000 -- -- -- -- -- -- --
Issuance of common stock -- -- -- -- -- 250,000
Additional paid-in capital -- -- 1,000,000 -- 1,000,000 (1,000,000) 1,102,500
Contribution of common stock 10,000 20,000 553,957 -- 573,957 (573,957) 573,957
Changes in net unrealized gains (losses)
on available-for-sale securities,
net of tax -- -- -- -- -- -- 212,791
Retained earnings (deficit):
Dividends paid, net -- -- -- -- -- -- (2,805,421)
Certificate liability release,
net of tax -- -- -- -- -- -- 1,259,530
Net loss since Acquisition -- -- -- (999) (999) 999 138,804
--------- --------- ---------- --------- ---------- ----------- -----------
Balance at December 31, 2000 10,000 20,000 1,553,957 (999) 1,572,958 (1,572,958) 732,161
Additional paid-in capital -- -- 67,524 -- 67,524 (67,524) 2,253,684
Changes in net unrealized gains (losses)
on available-for-sale securities,
net of tax -- -- -- -- -- -- 4,657
Retained earnings (deficit):
Dividends paid, net -- -- -- -- -- -- (579,934)
Net loss -- -- -- (21,475) (21,475) 21,475 (1,242,405)
--------- --------- ---------- --------- ---------- ----------- -----------
Balance at December 31, 2001 10,000 $ 20,000 $1,621,481 $ (22,474) $1,619,007 $(1,619,007) $ 1,168,163
========= ========= ========== ========= ========== =========== ===========
*On July 9, 2000 SBM Certificate Company of Maryland purchased SBM Certificate
of Minnesota (see note A)
See accompanying summary of accounting policies and notes to consolidating
financial statements
F-09
SBM Certificate Company
STATEMENT OF SHAREHOLDER'S EQUITY
Year ended December 31, 1999
Accumulated
Additional Other Total
Common Paid-in Comprehensive Retained Shareholder's
Stock Capital Income (loss) Earnings Equity
----------- ----------- ------------- ----------- -----------
Balance, December 31, 1998 $ 250,000 $ 3,050,000 $ 70,448 $ 1,657,592 $ 5,028,040
Net income -- -- -- 36,143 36,143
Change in net unrealized
gains (losses) on available-
for-sale securities, net of tax -- -- (895,970) -- (895,970)
----------- ----------- ----------- ----------- -----------
Comprehensive loss (859,827)
-----------
Balance, December 31, 1999 $ 250,000 $ 3,050,000 $ (825,522) $ 1,693,735 $ 4,168,213
=========== =========== =========== =========== ===========
See accompanying summary of accounting policies and notes to consolidating
financial statements
F-10
SBM Certificate Company and Subsidiary
CONSOLIDATING STATEMENT OF CASH FLOWS
Year ended December 31, 2001
SBM Certificate Atlantic Capital Eliminating
Company Funding Corp. Entries Totals
-------------- -------------- -------------- --------------
Cash flows from operating activities
Net loss $ (1,242,405) $ (21,475) $ 21,475 $ (1,242,405)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Loss from investment in subsidiary 21,475 -- (21,475) --
Provision for certificate liability 1,172,552 -- -- 1,172,552
Realized investment gains (68,697) -- -- (68,697)
Deferred income tax benefit (288,264) -- -- (288,264)
Deferral of acquisition costs (465,079) -- -- (465,079)
Amortization of deferred acquisition costs
and renewal commissions 125,422 -- -- 125,422
Other amortization and depreciation 63,660 541 -- 64,201
Increase in dividends and interest receivable (269,625) (3,848) -- (273,473)
Changes in other assets and liabilities (215,942) 33,636 -- (182,306)
-------------- -------------- -------------- --------------
Net cash provided by (used in) operating activities (1,166,903) 8,854 -- (1,158,049)
-------------- -------------- -------------- --------------
Cash flows from investing activities
Fixed maturity investments:
Sales and redemptions 6,532,248 -- -- 6,532,248
Purchase of mortgage notes held for sale (3,196,222) (332,421) -- (3,528,643)
Investment in mortgage notes held for investment (15,000) -- -- (15,000)
Principal payments received on mortgage notes receivable 1,775,650 135,882 -- 1,911,532
Real estate tax lien certificates:
Purchases (4,145,261) -- -- (4,145,261)
Repayments of tax lien certificates 1,228,198 -- -- 1,228,198
Investment in subsidiary (67,524) -- 67,524 --
Purchase of fixed assets (137,902) (19,290) -- (157,192)
Repayment of certificate loans, net 11,932 -- -- 11,932
-------------- -------------- -------------- --------------
Net cash provided by (used in) investing activities 1,986,119 (215,829) 67,524 1,837,814
-------------- -------------- -------------- --------------
Cash flows from financing activities
Amounts paid to face-amount certificate holders (4,750,988) -- -- (4,750,988)
Amounts received from face-amount certificate holders 6,472,858 -- -- 6,472,858
Capital contributed to company -- 67,524 (67,524) --
Net dividends paid (579,934) -- -- (579,934)
-------------- -------------- -------------- --------------
Net cash provided by (used in) financing activities 1,141,936 67,524 (67,524) 1,141,936
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS 1,961,152 (139,451) -- 1,821,701
Cash and cash equivalents, beginning 2,715,502 1,000,891 -- 3,716,393
-------------- -------------- -------------- --------------
Cash and cash equivalents, end $ 4,676,654 $ 861,440 $ -- $ 5,538,094
============== ============== ============== ==============
Supplemental disclosure of significant noncash investing
and financing activities:
Contribution of assets from State Bond $ 2,253,684 $ -- $ -- $ 2,253,684
============== ============== ============== ==============
See accompanying summary of accounting policies and notes to consolidating
financial statements
F-11
SBM Certificate Company and Subsidiary
CONSOLIDATING STATEMENT OF CASH FLOWS
Year ended December 31, 2000
SBM Atlantic
Certificate Capital Eliminating
Company Funding Corp. Entries Totals
-------------- -------------- -------------- --------------
Cash flows from operating activities
Net loss $ (290,643) $ (999) $ 999 $ (290,643)
Adjustments to reconcile net loss to net
cash provided by (used in) operating activities
Loss from investment in subsidiary 999 -- (999) --
Provision for certificate liability 1,523,169 -- -- 1,523,169
Realized investment losses 428,582 -- -- 428,582
Deferred income tax benefit (621,055) -- -- (621,055)
Deferral of acquisition costs (80,800) -- -- (80,800)
Amortization of deferred acquisition costs
and renewal commissions 150,445 -- -- 150,445
Other amortization and depreciation 18,947 -- -- 18,947
Decrease in dividends and interest receivable 41,252 -- -- 41,252
Changes in other assets and liabilities 425,769 1,890 -- 427,659
-------------- -------------- -------------- --------------
Net cash provided by (used in)
operating activities 1,596,665 891 -- 1,597,556
-------------- -------------- -------------- --------------
Cash flows from investing activities
Fixed maturity investments:
Purchases (263,808) -- -- (263,808)
Sales and redemptions 6,434,532 -- -- 6,434,532
Investment in mortgage notes held for investment (375,000) -- -- (375,000)
Investment in subsidiary (1,000,000) -- 1,000,000 --
Purchase of mortgage notes held for sale (2,816,735) -- -- (2,816,735)
Cash paid for SBM (1,350,000) -- -- (1,350,000)
Purchase of computer software (68,003) -- -- (68,003)
Repayment of certificate loans, net 14,864 -- -- 14,864
-------------- -------------- -------------- --------------
Net cash provided by investing activities 575,850 -- 1,000,000 1,575,850
-------------- -------------- -------------- --------------
Cash flows from financing activities
Amounts paid to face-amount certificate holders (8,718,868) -- -- (8,718,868)
Proceeds from issuance of common stock 250,000 -- -- 250,000
Capital contributed to company 1,102,500 1,000,000 (1,000,000) 1,102,500
Amounts received from face-amount
certificate holders 15,681 -- -- 15,681
Net dividends paid (6,513,805) -- -- (6,513,805)
-------------- -------------- -------------- --------------
Net cash provided by (used in)
financing activities (13,864,492) 1,000,000 (1,000,000) (13,864,492)
-------------- -------------- -------------- --------------
NET INCREASE (DECREASE) IN CASH
AND CASH EQUIVALENTS (11,691,977) 1,000,891 -- (10,691,086)
Cash and cash equivalents, beginning 14,407,479 -- -- 14,407,479
-------------- -------------- -------------- --------------
Cash and cash equivalents, end $ 2,715,502 $ 1,000,891 $ -- $ 3,716,393
============== ============== ============== ==============
(continued)
F-12
SBM Certificate Company and Subsidiary
CONSOLIDATING STATEMENT OF CASH FLOWS - CONTINUED
Year ended December 31, 2000
Supplemental disclosure of significant noncash investing
and financing activities:
Release of cerfificate liability, net of tax $ 1,259,530
============
Acquisition of SBM-MN:
Assets acquired $ 27,390,982
Liabilities assumed (26,557,263)
Legal acquisiton costs (136,868)
Goodwill 653,149
------------
Total purchase price $ 1,350,000
============
Contribution of 1st Atlantic ownership to SBM-MD $ 573,957
============
See accompanying summary of accounting policies and notes to consolidating
financial statements
F-13
SBM Certificate Company
STATEMENT OF CASH FLOWS
Year ended December 31, 1999
Cash flows from operating activities
Net income $ 36,143
Adjustments to reconcile net income to net cash
provided by operating activities
Provision for certificate liability 1,615,074
Realized investment losses 470,507
Deferral of acquisition costs (140,145)
Amortization of deferred acquisition costs and
renewal commissions 193,973
Other amortization and depreciation 23,711
Deferred tax expense 11,513
Decrease in dividends and interest receivable 115,051
Changes in other assets and liabilities (247,085)
------------
Net cash provided by operating activities 2,078,742
------------
Cash flows from investing activities
Fixed maturity investments:
Purchases (22,469,407)
Maturities and redemptions 26,873,872
Sales 10,171,240
Repayment of certificate loans, net 39,276
------------
Net cash provided by investing activities 14,614,981
------------
Cash flows from financing activities
Amounts paid to face-amount certificate holders