Ambac Financial Group, Inc. (NYSE: ABK) Third Quarter Net Income
Per Diluted Share of $1.61, Down 2%, Third Quarter Credit
Enhancement Production(1) $256.6 Million, Down 6% Ambac Financial
Group, Inc. (NYSE: ABK) (Ambac) today announced third quarter 2005
net income of $175.1 million, or $1.61 per diluted share. This
represents a 5% decrease from third quarter 2004 net income of
$183.5 million, and a 2% decrease in net income per diluted share
from $1.65 in the third quarter of 2004. The third quarter 2005
results were negatively impacted by a loss provision amounting to
$60.0 million on an after-tax basis, or $0.55 per diluted share,
related to its exposure to municipal finance credits impacted by
Hurricane Katrina. Net Income Per Diluted Share Net income and net
income per diluted share are computed in conformity with U.S.
generally accepted accounting principles (GAAP). However, many
research analysts and investors do not limit their analysis of our
earnings to a strictly GAAP basis. In order to assist investors in
their understanding of quarterly results, Ambac provides other
information. Earnings measures reported by research analysts
typically exclude the net income impact of net gains and losses
from sales of investment securities and mark-to-market gains and
losses on credit, total return and non-trading derivative contracts
(collectively "net security gains and losses") and certain
non-recurring and other items. Certain research analysts and
investors further exclude the net income impact of accelerated
premiums earned on guaranteed obligations that have been refunded
and other accelerated earnings ("accelerated earnings"). During the
third quarter 2005, net security gains and losses had the effect of
increasing net income by $8.8 million, $0.08 on a per diluted share
basis. Accelerated earnings had the effect of increasing net income
by $28.5 million, or $0.26 per diluted share for the third quarter
2005. Table I, below, provides third quarter and nine-month
comparisons of earnings for the years 2005 and 2004. -0- *T Table I
Third Quarter Nine months % % 2005 2004 Change 2005 2004 Change
---- ---- ------ ---- ---- ------ Net income per diluted share
$1.61 $1.65 - 2% $4.97 $4.84 + 3% Effect of net n.a. n.a. security
gains ($0.08) ($0.06) ($0.27) ($0.17) Non-recurring and n.a. n.a.
other(a) $0.00 $0.00 $0.00 ($0.02) ----- ----- ----- -------
Sub-total excluding effect of net security gains/losses and
non-recurring items(b) $1.53 $1.59 - 4% $4.70 $4.65 + 1% Effect of
n.a. n.a. Accelerated earnings ($0.26) ($0.11) ($0.56) ($0.35)
------- ------- ------- ------- Total excluding items $1.27 $1.48 -
14% $4.14 $4.30 - 4% ===== ===== ======= ======= (a) 2004 third
quarter and nine months results have been adjusted by $1.3 million
and $3.5 million, respectively, for expenses related to Ambac's
contingent capital facility to be comparable with 2005 reporting.
(b) Consensus earnings that are reported by earnings estimate
services, such as First Call, are on this basis, which excludes net
security gains and losses and non-recurring items. *T Commenting on
the overall results, Ambac President and Chief Executive Officer,
Robert J. Genader, noted, "Our operating results, excluding the
$0.55 per share impact of Hurricane Katrina, were pretty good
considering the tight credit spreads and increased competition that
have persisted during the past 18 months. Domestic top-line
production in both public and structured finance was encouraging,
with attractive deals closed in a wide array of sectors. European
booked business was sparse despite strong activity and growing
pipelines - it remains a lumpy and less predictable business flow
with long lead times." Mr. Genader continued, "The story of the
quarter was Hurricane Katrina and the physical destruction and
human suffering that it wrought. While early in the assessment
process, we have completed a detailed loss analysis using the best
information we could develop. By its very nature, it will be an
evolving situation which will require and get our full attention on
surveillance and active remediation. On a positive note, the
balance of our risk portfolio showed improvement." Revenues
Highlights Credit enhancement production(1) in the third quarter of
2005 was $256.6 million, down 6% from the third quarter of 2004
which came in at $273.7 million. Growth in U.S. public finance was
more than offset by a decline in production in U.S. structured
finance and international. Credit enhancement production for the
nine months of 2005 of $853.5 million was 10% lower than credit
enhancement production of $943.6 million in the same period of 2004
primarily driven by tighter credit spreads across many of the
markets that Ambac serves. Table II, below, provides the third
quarter and nine-month comparisons of credit enhancement production
by market sector, for 2005 and 2004. -0- *T Table II Credit
Enhancement Production(1) $-millions Third Quarter Nine months % %
2005 2004 Change 2005 2004 Change -------- ------ -------- --------
-------- -------- Public Finance $118.3 $105.9 + 12% $397.3 $440.5
- 10% Structured Finance 110.5 123.5 - 11% 329.1 290.3 + 13%
International 27.8 44.3 - 37% 127.1 212.8 - 40% -------- -------
-------- -------- Total $256.6 $273.7 - 6% $853.5 $943.6 - 10%
======== ======= ======== ======== *T In Public Finance, municipal
market issuance, as reported by third party sources, was 27% higher
in the third quarter of 2005 than in the comparable prior period
while insured market penetration remained strong at 55% but
slightly lower than third quarter of 2004. Transactions guaranteed
during the quarter included strong writings in the health care and
municipal lease sectors of the market offset by lower writings in
the municipal utilities and housing sectors. Spreads in U.S. public
finance remain fairly attractive, however, pricing has been
impacted by increased competition from other financial guarantors.
U.S. structured finance production during the quarter was good but
slightly lower than the comparable prior period as significant
commercial asset-backed securitization activity was offset by lower
consumer asset-backed writings. Competition from the market in the
form of senior/subordination execution remains strong in many
sectors. International writings were slow for the quarter but
opportunities are plentiful across many business sectors and
geographies. The international segment production is lumpy
primarily due to long transaction closing cycles typically caused
by the size and complexity of the deals. Net premiums written in
the third quarter of 2005 of $203.6 million were 6% higher than net
premiums written of $191.9 million in the same period of 2004.
Gross premiums written in the third quarter of 2005 and 2004 were
offset by $34.3 million and $18.7 million, respectively, in ceded
premiums. Ceded premiums as a percentage of gross premiums written
were 14% and 9% for the third quarter of 2005 and 2004,
respectively. The mix of business underwritten and greater
reinsurance treaty participation during the quarter drove the
increase. Net premiums written for the nine months of 2005 of
$728.0 million were 5% lower than net premiums written of $763.6
million in the same period of 2004. Excluding the impact of return
premiums in each of the periods ($55.8 million in the first quarter
of 2005 and $64.8 million in the second quarter of 2004), net
premiums written are down 4%, period on period due to less U.S.
public finance business written (where premiums are primarily
collected up front) and greater reinsurance treaty participation
during 2005. A breakdown of gross premiums written by market sector
and ceded premiums for the third quarter and nine-month periods of
2005 and 2004 are included below in Table III. -0- *T Table III
Premiums Written $-millions Third Quarter Nine months % % 2005 2004
Change 2005 2004 Change ------ ------ -------- ------ ------
-------- Public Finance $111.7 $93.1 + 20% $393.2 $431.8 - 9%
Structured Finance 78.1 69.6 + 12% 231.2 211.2 + 9% International
48.1 47.9 0 % 165.3 157.2 + 5% ------- ------- ------- -------
Total Gross Premiums Written 237.9 210.6 + 13% 789.7 800.2 - 1%
Ceded Premiums Written (34.3) (18.7) + 83% (61.7) (36.6) +69%
------- ------- ------- ------- Net Premiums Written $203.6 $191.9
+ 6% $728.0 $763.6 - 5% ======= ======= ======= ======= *T Net
premiums earned and other credit enhancement fees for the third
quarter of 2005 were $231.1 million, which represented an 18%
increase from the $195.3 million earned in the third quarter of
2004. Net premiums earned increased for all market sectors but was
most significant in U.S. public finance where accelerated premiums
were very strong during the quarter. Net premiums earned include
accelerated premiums, which result from refundings, calls and other
accelerations recognized during the quarter. Accelerated premiums
were $48.9 million in the third quarter of 2005 (which had a net
income per diluted share effect of $0.26), up 133% from $21.0
million ($0.11 per diluted share) in accelerated premiums in the
third quarter of 2004. The third quarter 2005 was impacted by one
large refunded transaction, representing almost half of the total
accelerated amount. Long-term interest rates have remained
relatively low during 2005 and we continue to see strong refunding
activity in our public finance segment. However, as interest rates
rise, the level of accelerated premiums should decline. Net
premiums earned and other credit enhancement fees for the nine
months of 2005 were $648.6 million, which represented a 13%
increase from $573.6 million earned in the nine months of 2004.
Accelerated premiums were $107.9 million for the nine months of
2005 ($0.56 per diluted share), up 56% from $69.2 million ($0.35
per diluted share) in accelerated premiums for the nine months of
2004. Accelerated premiums in 2005 include the impact of a
reinsurance cancellation in the first quarter of 2005 amounting to
$4.5 million. Accelerated premiums in 2004 include the impact of
reinsurance cancellations in the second quarter of 2004 amounting
to $10.4 million. A breakdown of net premiums earned and other
credit enhancement fees by market sector for the third quarter and
nine months of 2005 and 2004 are included below in Table IV. Normal
net premiums earned exclude accelerated premiums that result from
refundings, calls and other accelerations. -0- *T Table IV Net
Premiums Earned and Other Credit Enhancement Fees $-millions Third
Quarter Nine months % % 2005 2004 Change 2005 2004 Change -------
------- -------- -------- -------- -------- Public Finance $56.9
$53.5 + 6% $166.7 $153.3 + 9% Structured Finance 71.4 70.2 + 2%
211.7 203.4 + 4% International 53.9 50.6 + 7% 162.3 147.7 + 10%
------- ------- -------- -------- Total Normal Premiums/Fees 182.2
174.3 + 5% 540.7 504.4 + 7% Accelerated Premiums/Fees 48.9 21.0 +
133% 107.9 69.2 + 56% ------- ------- -------- -------- Total
$231.1 $195.3 + 18% $648.6 $573.6 + 13% ======= ======= ========
======== *T Public finance earned premiums, before accelerations,
grew 6%. Earned premium growth in this segment has been negatively
impacted by the high level of refunding activity in Ambac's public
finance book. The high refunding level has substantially offset the
positive impact resulting from our focus on higher value-added
structured municipal transactions. Structured finance earned
premiums and other credit enhancement fees grew 2%. The rate of
growth in structured finance has slowed significantly over the past
18 months, adversely impacted by lower premium production in
mortgage-backed and home equity securitizations and pooled debt
obligations. These relatively short-term asset classes had
experienced significant growth in years prior to 2004, fueled by
heavy issuance and wide spreads. However, narrowing credit spreads
and increased competition has led to significantly lower writings
in these segments. The lower business writings combined with the
high level of principal pay downs (mortgage-backed securities) and
deal terminations (CDOs) has reduced the size of the portfolios,
resulting in lower earnings from these specific asset classes.
International earned premiums and other credit enhancement fees
grew 7%. The rate of growth in this sector has also slowed in 2005.
The decline is driven primarily by maturities and calls of our
pooled debt obligations outstanding. Additionally, new business
generation in this asset class has slowed somewhat as credit
spreads have generally narrowed, reducing the need for financial
guarantee protection. Net investment income for the third quarter
of 2005 was $110.6 million, representing an increase of 22% from
$90.5 million in the comparable period of 2004. Net investment
income excluding net investment income from Variable Interest
Entities ("VIEs") for the third quarter of 2005 was $98.5 million,
representing an increase of 10% from $89.6 million in the third
quarter of 2004. This increase was due primarily to the growth in
the investment portfolio driven by ongoing collection of financial
guarantee premiums and fees and a net positive adjustment to
investment income for certain municipal securities within the
investment portfolio that have been pre-refunded. A pre-refunding
shortens the maturity of a bond resulting in accelerated
amortization of bond premium or discount These positive effects on
investment income during the period were partially offset by a
lower reinvestment rate and use of cash for repurchases of Ambac
stock during 2005 totaling approximately $300 million. Net
investment income from VIEs for the third quarter of 2005 was $12.1
million, up from $0.9 million in the third quarter of 2004.
Investment income from VIEs results from the consolidation of
certain trusts that Ambac has insured and consolidated under
accounting pronouncement FIN 46. The increase in interest income
from VIEs reflects the consolidation of two transactions executed
in the fourth quarter of 2004. Investment income from VIEs is
offset by interest expense on VIEs, shown separately in the
Consolidated Statements of Operations. Net investment income
(including net investment income from VIEs) for the nine months of
2005 was $317.1 million, representing an increase of 19% from
$267.1 million in the comparable period of 2004, primarily as a
result of the reasons provided above. Financial services. The
financial services segment is comprised of the investment agreement
business and derivative products business. The investment agreement
business is managed with the goal of approximately matching the
cash flows of the investment agreement liabilities with the cash
flows of the related investment portfolio. The primary activities
in the derivative products business are intermediation of interest
rate and currency swap transactions and taking total return swap
positions on certain fixed income obligations. Gross interest
income less gross interest expense from investment and payment
agreements plus results from the derivative products business,
excluding net realized investment gains and losses and unrealized
gains and losses on total return swaps and non-trading derivative
contracts, were $17.1 million in the third quarter of 2005, up 23%
from $13.9 million in the third quarter of 2004. The increase was
driven by spread improvement in the investment agreement business
and net mark-to-market gains in the derivative products business
primarily resulting from the decrease in the ratio of tax-exempt
interest rates to taxable interest rates. Financial services
revenues, as defined above, were $35.4 million in the nine months
of 2005, down 15% from the $41.7 million in the first nine months
of 2004, primarily due to lower revenues in the derivative products
business. Expenses Highlights Financial guarantee expenses of
$128.6 million for the third quarter of 2005 increased by 188% over
the $44.6 million of expenses for the same quarter of 2004.
Financial guarantee loss and loss expenses grew significantly from
$17.7 million in the third quarter of 2004 to $89.1 million in the
third quarter of 2005, due to increased reserves resulting from
municipal exposures in the region impacted by Hurricane Katrina, as
described below in "Loss Reserve Activity". Net underwriting and
operating expenses of the financial guarantee segment totaled $27.8
million in the third quarter of 2005, up 6% from $26.2 in the third
quarter of 2004. Interest expense on VIE notes amounting to $11.6
million and $0.7 million in the third quarter of 2005 and 2004,
respectively, result from the consolidation of certain trusts that
Ambac has insured and consolidated under accounting pronouncement
FIN 46. Financial guarantee expenses of $259.2 million for the nine
months of 2005 increased by 90% over the $136.1 million of expenses
for the same period of 2004. Financial guarantee loss and loss
expenses of $134.3 million for the nine months of 2005 increased
155% from $52.7 million in 2004 primarily due to the Hurricane
Katrina provisioning, described below. Net underwriting and
operating expenses of the financial guarantee segment for the first
nine months totaled $89.9 million, up 11% from $81.3 in the
comparable period of 2004, primarily due to higher compensation
costs. Financial services other expenses, which represent the
operating expenses for the segment, amounted to $2.9 million for
the third quarter of 2005, down 12% from $3.3 million in the
comparable prior period. Financial services other expenses for the
nine months of 2005 of $10.2 million were relatively flat to the
comparable prior period. Loss Reserve Activity Case basis loss
reserves (loss reserves for exposures that have defaulted)
decreased $3.7 million during the third quarter of 2005 from $86.6
million at June 30, 2005 to $82.9 million at September 30, 2005.
Active credit reserves ("ACR") are established for probable and
estimable losses due to credit deterioration on insured
transactions that are considered adversely classified. Ambac
continuously monitors its insured portfolio actively seeking to
mitigate claims. The ACR increased by $79.3 million during the
quarter, primarily as a result of municipal exposures to the region
impacted by Hurricane Katrina. Ambac's exposure to losses as a
result of the hurricane is derived primarily from its guarantees of
municipal bonds in the greater New Orleans area and the Gulf-front
regions that were most severely impacted by the storm. The company
has classified 35 individual obligations in the region with total
net par outstanding of approximately $1.1 billion. To date, Ambac
has paid three claims on obligations in the region, totaling
approximately $2.0 million and has subsequently recovered the full
amounts. In determining our loss estimate, our analysis has
considered the unprecedented nature of the disaster, including the
displacement of the communities' residents, and the unique aspects
of each insured bond, such as the nature of the revenue source, the
level of debt service reserves, if any, and other transaction
protections. Ambac's estimate of losses related to the hurricane
was made without regard to any potential federal, state or local
government assistance to individual municipalities or institutions.
The credit loss estimation process involves the exercise of
considerable judgment. Due to the nature of the loss reserve
estimate, Ambac's ultimate actual loss associated with the
hurricane may be materially different than the current estimate and
thereby may affect future operating results. Ambac will continue to
assess the impact of Hurricane Katrina on the fourth quarter and
subsequent periods as more information becomes available to us.
Ambac does not have material exposure to credits adversely affected
by Hurricane Rita. Outside of the ACR activity related to the
hurricane, the remaining portfolio experienced slightly favorable
credit migration during the quarter. Other Items Total net
securities gains/(losses) for the third quarter of 2005 were $14.5
million on a pre-tax basis, or $0.08 per diluted share; consisting
of net realized gains on investment securities of $9.5 million, net
mark-to-market gains on credit and total return derivatives of $3.9
million and net mark-to-market gains on non-trading derivative
contracts of $1.1 million. For the third quarter of 2004, net
securities gains/(losses) were $10.1 million on a pre-tax basis, or
$0.06 per diluted share; consisting of net realized gains on
investment securities of $6.6 million, net mark-to-market gains on
credit and total return derivatives of $3.0 million and net
mark-to-market gains on non-trading derivative contracts of $0.5
million. Total net securities gains/(losses) for the nine months of
2005 were $53.1 million, or $0.27 per diluted share, consisting of
net realized gains on investment securities of $10.8 million, net
mark-to-market losses on credit and total return derivatives of
($7.0) million and net mark-to-market gains on non-trading
derivative contracts of $49.3 million. As discussed in the previous
quarter, the mark-to-market gains on non-trading derivative
contracts related almost entirely to interest rate hedge contracts
related to long-term fixed rate liabilities in Ambac's investment
agreement business that were highly effective from an economic
perspective but did not meet the technical requirements of FAS 133.
As of July 1, 2005, the hedges were redesignated to meet the
technical requirements and it is expected that the mark-to-market
of the hedge and hedged item will substantially offset each other
in the income statement prospectively. For the nine months of 2004
net securities gains were $29.3 million, or $0.17 per diluted
share, consisting of net realized gains on investment securities of
$27.6 million, mark-to-market gains on credit derivatives and total
return swaps of $15.2 million and net mark-to-market losses on
non-trading derivative contracts of ($13.5) million. Balance Sheet
Highlights Total assets as of September 30, 2005 were $19.06
billion, up 2% from total assets of $18.74 billion at December 31,
2004. The increase was driven by cash generated from business
written during the period offset by a decrease in the unrealized
gains in the investment portfolio driven by higher long-term
interest rates and stock repurchases during the period. As of
September 30, 2005, stockholders' equity was $5.19 billion, a 3%
increase from year-end 2004 stockholders' equity of $5.02 billion.
The increase was primarily the result of net income during the
period, offset by lower "Accumulated Other Comprehensive Income,"
driven by higher long-term interest rates and stock repurchases
during the period. Stock Repurchase Activity During the quarter,
Ambac repurchased approximately 2.4 million shares of its stock at
a total cost of approximately $164.4 million. Year-to-date
repurchases have amounted to approximately 4.3 million shares at a
total cost of approximately $298.2 million. The company has
approximately 4.6 million shares remaining under the Company's
Share Repurchase Program authorized by the Board of Directors
earlier this year. Cash Dividend Declared At its October 2005 Board
meeting, the Board of Directors of Ambac Financial Group, Inc.
approved the regular quarterly cash dividend of $0.15 per share of
common stock. The dividend is payable on December 7, 2005 to
stockholders of record on November 10, 2005. Forward-Looking
Statements This release, in particular the President and Chief
Executive Officer's remarks, contains statements about our future
results that may be considered "forward-looking statements" under
the Private Securities Litigation Reform Act of 1995. These
statements are based on current expectations and the current
economic environment. We caution you that these statements are not
guarantees of future performance. They involve a number of risks
and uncertainties that are difficult to predict. Our actual results
could differ materially from those expressed or implied in the
forward-looking statements. Among the factors that could cause
actual results to differ materially are (1) changes in the
economic, credit, or interest rate environment in the United States
and abroad; (2) the level of activity within the national and
worldwide debt markets; (3) competitive conditions and pricing
levels; (4) legislative and regulatory developments; (5) changes in
tax laws; (6) the policies and actions of the United States and
other governments; (7) changes in capital requirement or other
criteria of rating agencies; (8) changes in accounting principles
or practices that may impact the Company's reported financial
results; (9) inadequacy of reserves established for losses and loss
adjustment expenses; (10) default of one or more of the Company's
reinsurers; (11) market spreads and pricing on insured pooled debt
obligations and other derivative products insured or issued by the
Company; (12) prepayment speeds on insured asset-backed securities
and other factors that may influence the amount of installment
premiums paid to the Company; and (13) other risks and
uncertainties that have not been identified at this time. We
undertake no obligation to publicly correct or update any
forward-looking statement if we later become aware that it is not
likely to be achieved, except as required by law. Ambac Financial
Group, Inc., headquartered in New York City, is a holding company
whose affiliates provide financial guarantees and financial
services to clients in both the public and private sectors around
the world. Ambac's principal operating subsidiary, Ambac Assurance
Corporation, a leading guarantor of public finance and structured
finance obligations, has earned triple-A ratings, the highest
ratings available from Moody's Investors Service, Inc., Standard
& Poor's Ratings Services, Fitch, Inc. and Rating and
Investment Information, Inc. Ambac Financial Group, Inc. common
stock is listed on the New York Stock Exchange (ticker symbol ABK).
-0- *T Footnotes --------- (1) Credit enhancement production, which
is not promulgated under GAAP, is used by management, equity
analysts and investors as an indication of new business production
in the period. Credit enhancement production, which Ambac reports
as analytical data, is defined as gross (direct and assumed)
up-front premiums plus the present value of estimated installment
premiums on insurance policies and structured credit derivatives
issued in the period. The definition of credit enhancement
production used by Ambac may differ from definitions of credit
enhancement production used by other public holding companies of
financial guarantors. The following table reconciles credit
enhancement production to gross premiums written calculated in
accordance with GAAP: $-millions Third Quarter Nine months 2005
2004 2005 2004 ------ ------ ------ ------ Credit enhancement
production $257 $274 $854 $944 Present value of estimated
installment premiums written on insurance policies and structured
credit derivatives issued in the period (143) (180) (446) (495)
------ ------ ------ ------ Gross up-front premiums written $114 $
94 $408 $449 Gross installment premiums written on insurance
policies 124 117 382 351 ------ ------ ------ ------ Gross premiums
written $238 $211 $790 $800 ====== ====== ====== ====== *T -0- *T
Ambac Financial Group, Inc. and Subsidiaries Consolidated
Statements of Operations (Unaudited) For the Three and Nine Months
Ended September 30, 2005 and 2004 (Dollars in Thousands Except
Share Data) Three Months Ended Nine Months Ended September 30,
September 30, ------------------------- -------------------------
2005 2004 2005 2004 -------------------------
------------------------- Revenues: Financial Guarantee: Gross
premiums written $237,943 $210,587 $789,697 $800,217 Ceded premiums
written (34,296) (18,649) (61,707) (36,586) ------------
------------ ------------ ------------ Net premiums written
$203,647 $191,938 $727,990 $763,631 ============ ============
============ ============ Net premiums earned $218,098 $183,499
$610,974 $538,527 Other credit enhancement fees 13,014 11,839
37,617 35,084 ------------ ------------ ------------ ------------
Net premiums earned and other credit enhancement fees 231,112
195,338 648,591 573,611 Net investment income 110,646 90,454
317,104 267,088 Net realized investment gains 5,013 7,358 6,004
22,523 Net mark-to- market gains (losses) on credit derivative
contracts 1,555 (330) (4,785) 9,888 Other income (loss) 2,859 799
6,150 (10,014) Financial Services: Interest from investment and
payment agreements 70,854 48,452 192,951 146,542 Derivative
products 8,896 7,175 13,202 20,269 Net realized investment gains
(losses) 4,520 (830) 4,808 5,013 Net mark-to- market gains (losses)
on total return swap contracts 2,347 3,277 (2,255) 5,301 Net
mark-to- market (losses) gains on non-trading derivatives (57) 22
48,869 126 Corporate: Net investment income 515 416 1,320 1,172 Net
realized investment gains - - - 18 ------------ ------------
------------ ------------ Total revenues 438,260 352,131 1,231,959
1,041,537 ------------ ------------ ------------ ------------
Expenses: Financial Guarantee: Loss and loss expenses 89,126 17,700
134,255 52,700 Underwriting and operating expenses 27,844 26,186
89,939 81,299 Interest expense on variable interest entity notes
11,623 710 35,018 2,102 Financial Services: Interest from
investment and payment agreements 62,602 41,736 170,781 125,106
Other expenses 2,912 3,349 10,162 10,425 Interest 13,627 13,722
40,653 40,808 Corporate 3,548 2,678 11,291 7,468 ------------
------------ ------------ ------------ Total expenses 211,282
106,081 492,099 319,908 ------------ ------------ ------------
------------ Income before income taxes 226,978 246,050 739,860
721,629 Provision for income taxes 51,861 61,632 193,102 184,560
------------ ------------ ------------ ------------ Income from
continuing operations 175,117 184,418 546,758 537,069 ------------
------------ ------------ ------------ Discontinued operations:
Loss from discontinued operations - (799) - (1,349) Income tax
benefit - 160 - (60) ------------ ------------ ------------
------------ Net loss from discontinued operations - (959) -
(1,289) ------------ ------------ ------------ ------------ Net
income $175,117 $183,459 $546,758 $535,780 ============
============ ============ ============ Earnings per share: Income
from continuing operations $1.63 $1.68 $5.02 $4.90 Discontinued
operations $0.00 ($0.01) $0.00 ($0.01) ------------ ------------
------------ ------------ Net income $1.63 $1.67 $5.02 $4.89
============ ============ ============ ============ Earnings per
diluted share: Income from continuing operations $1.61 $1.66 $4.97
$4.85 Discontinued operations $0.00 ($0.01) $0.00 ($0.01)
------------ ------------ ------------ ------------ Net income
$1.61 $1.65 $4.97 $4.84 ============ ============ ============
============ Weighted average number of common shares outstanding:
Basic 107,392,176 109,771,249 108,891,738 109,468,844 ============
============ ============ ============ Diluted 108,484,035
111,107,367 110,121,701 110,777,264 ============ ============
============ ============ Ambac Financial Group, Inc. and
Subsidiaries Consolidated Balance Sheets September 30, 2005 and
December 31, 2004 (Dollars in Thousands Except Share Data)
September 30, December 31, 2005 2004 -------------- --------------
(unaudited) Assets ------ Investments: Fixed income securities, at
fair value (amortized cost of $14,757,218 in 2005 and $13,425,475
in 2004) $15,155,998 $13,901,218 Fixed income securities pledged as
collateral, at fair value (amortized cost of $383,545 in 2005 and
$345,195 in 2004) 376,928 341,742 Short-term investments, at cost
(approximates fair value) 175,097 521,226 Other (cost of $3,781 in
2005 and $3,731 in 2004) 4,412 4,234 -------------- --------------
Total investments 15,712,435 14,768,420 Cash 28,468 19,957
Securities purchased under agreements to resell 32,000 353,000
Receivable for securities sold 1,136 1,319 Investment income due
and accrued 155,715 162,506 Reinsurance recoverable on paid and
unpaid losses 1,160 16,765 Prepaid reinsurance 287,161 297,330
Deferred acquisition costs 201,734 184,766 Loans 1,347,136
1,405,700 Derivative assets 1,145,224 1,455,609 Other assets
150,132 77,523 -------------- -------------- Total assets
$19,062,301 $18,742,895 ============== ============== Liabilities
and Stockholders' Equity ---------------------------------------
Liabilities: Unearned premiums $2,875,956 $2,778,893 Loss and loss
expense reserve 288,822 254,055 Ceded reinsurance balances payable
19,072 18,248 Obligations under investment and payment agreements
6,902,790 6,813,914 Obligations under investment repurchase
agreements 201,680 266,806 Deferred income taxes 266,199 217,373
Current income taxes 1,627 16,406 Long-term debt 1,860,727
1,866,207 Accrued interest payable 79,581 71,058 Derivative
liabilities 987,545 1,206,740 Other liabilities 240,928 208,732
Payable for securities purchased 143,379 6 --------------
-------------- Total liabilities 13,868,306 13,718,438
-------------- -------------- Stockholders' equity: Preferred stock
- - Common stock 1,091 1,089 Additional paid-in capital 716,870
694,465 Accumulated other comprehensive income 235,502 296,814
Retained earnings 4,520,475 4,032,089 Common stock held in treasury
at cost (279,943) - -------------- -------------- Total
stockholders' equity 5,193,995 5,024,457 --------------
-------------- Total liabilities and stockholders' equity
$19,062,301 $18,742,895 ============== ============== Number of
shares outstanding (net of treasury shares) 105,150,417 108,915,944
============== ============== Book value per share $49.40 $46.13
============== ============== Ambac Assurance Corporation and
Subsidiaries Capitalization Table - GAAP September 30, 2005 and
December 31, 2004 (Dollars in Millions) The following table sets
forth Ambac Assurance's consolidated capitalization as of September
30, 2005 and December 31, 2004, respectively, on the basis of
accounting principles generally accepted in the United States of
America. September 30, December 31, 2005 2004 --------------
-------------- (unaudited) Unearned premiums $2,888 $2,783
Long-term debt 1,069 1,074 Other liabilities 2,014 2,192
-------------- -------------- Total liabilities 5,971 6,049
-------------- -------------- Stockholder's equity: Common stock 82
82 Additional paid-in capital 1,252 1,233 Accumulated other
comprehensive income 165 238 Retained earnings 4,314 4,094
-------------- -------------- Total stockholder's equity 5,813
5,647 -------------- -------------- Total liabilities and
stockholder's equity $11,784 $11,696 ============== ==============
*T
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