Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today announced
second quarter 2006 net income of $238.6 million, or $2.22 per
diluted share. This represents a 28% increase from second quarter
2005 net income of $186.1 million, and a 31% increase in net income
per diluted share from $1.69 in the second quarter of 2005. 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 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 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
second quarter 2006, net security gains and losses had the effect
of increasing net income by $32.9 million, $0.31 on a per diluted
share basis. Accelerated earnings had the effect of increasing net
income by $22.8 million, or $0.21 per diluted share for the second
quarter 2006. Table I, below, provides second quarter and six-month
comparisons of earnings for 2006 and 2005. -0- *T Table I Earnings
Per Diluted Share Second Quarter Six Months % % 2006 2005 Change
2006 2005 Change ------------------------------------------------
Net income per diluted share $2.22 $1.69 + 31% $4.28 $3.35 + 28%
Effect of net security gains ($0.31) ($0.14) n.a. ($0.38) ($0.19)
n.a. Other $0.00 $0.01 n.a. $0.00 $0.00 n.a. ----------------
---------------- Operating earnings (a)(b) $1.91 $1.56 + 22% $3.90
$3.16 + 23% Effect of accelerated earnings ($0.21) ($0.12) n.a.
($0.32) ($0.29) n.a. ---------------- ---------------- Core
earnings(b) $1.70 $1.44 + 18% $3.58 $2.87 + 25% ================
================ (a) Consensus earnings that are reported by
earnings estimate services, such as First Call, are on this basis.
(b) Operating and core earnings are non-GAAP measures. See footnote
2 on page 10. *T Commenting on the overall results, Ambac Chairman
and Chief Executive Officer, Robert J. Genader, noted, "I am
encouraged by the strong credit enhancement production and solid
financial results for the quarter. The company's ability to produce
record results in this suboptimal business environment is a
testament to our people and our strategy. We continue to uncover
attractive opportunities to put our capital to work in the
short-term and I am confident that the company is well positioned
both domestically and internationally for the long-term." Revenues
Highlights -- Credit enhancement production(1) in the second
quarter of 2006 was $531.0 million, up 33% from the second quarter
of 2005 which came in at $397.9 million. Growth in international
and U.S. structured finance was partially offset by a decline in
U.S. public finance. Credit enhancement production for the six
months of 2006 of $764.4 million was 28% higher than credit
enhancement production of $596.9 million in the same period of
2005. Table II, below, provides the second quarter and six-month
comparisons of credit enhancement production by market segment for
2006 and 2005. -0- *T Table II Credit Enhancement Production(1)
$-millions Second Quarter Six Months % % 2006 2005 Change 2006 2005
Change ------------------------------------------------ Public
Finance $132.1 $170.0 - 22% $231.2 $279.0 - 17% Structured Finance
212.8 141.6 + 50% 303.5 218.6 + 39% International 186.1 86.3 + 116%
229.7 99.3 + 131% ---------------- ---------------- Total $531.0
$397.9 + 33% $764.4 $596.9 + 28% ================ ================
*T -- In public finance, Ambac's premium production was lower as
market issuance declined slightly. Overall municipal market
issuance, as reported by third party sources, was down 3% quarter
on quarter. A significant reduction in refunding issuance was
almost entirely offset by strong new money issuance during the
quarter. However, the primary driver of the decline in credit
enhancement production was the change in the mix of credit quality
of municipal transactions that came to market during the quarter
which resulted in fewer insurable transactions. The municipal
market penetration rate for the industry declined to 45% in the
second quarter 2006, down significantly from 61% in the comparable
quarter of 2005. Spreads in the U.S. public finance segment have
remained attractive but competition has negatively impacted
pricing, especially in the more commoditized sectors such as
general obligations. Ambac had strong writings in the healthcare,
tax-backed and housing sectors during the quarter. U.S. structured
finance production during the quarter was strong as increased
writings in commercial asset-backed securitizations, structured
insurance securitizations and collateralized debt obligations were
partially offset by lower auto securitizations and investor-owned
utilities. Competition from the senior/subordinated market remains
challenging and spreads remain tight across most asset classes of
U.S. structured finance. International production was strong as
several large U.K. private finance initiatives (PFI) transactions
closed. Outside of the U.K., Ambac continues to see attractive
opportunities across diverse geographic regions and asset classes
including transportation, utilities, and future flow deals. -- Net
premiums written in the second quarter of 2006 of $255.7 million
were 5% lower than net premiums written of $268.6 million in the
same period of 2005. Gross premiums written in the second quarter
of 2006 and 2005 were $313.5 million and $322.6 million,
respectively. The decreases in net and gross premiums written are
primarily attributable to lower U.S. public finance business
written during the second quarter of 2006 as premiums in that
business are generally collected at inception of the policy. Ceded
premiums as a percentage of gross premiums written were 18.4% and
16.7% for the second quarter of 2006 and 2005, respectively. Net
premiums written for the six months of 2006 of $483.5 million were
8% lower than net premiums written of $524.4 million in the same
period of 2005. Excluding the impact of return premiums from
reinsurance cancellations in each of the periods ($37.0 million in
the first quarter of 2006 and $55.8 million in the first quarter of
2005), net premiums written are down 5%, period on period primarily
due to less U.S. public finance business written during 2006. A
breakdown of gross premiums written by market segment and ceded
premiums for the second quarter and six-month periods of 2006 and
2005 are included below in Table III. -0- *T Table III Premiums
Written $-millions Second Quarter Six Months % % 2006 2005 Change
2006 2005 Change -----------------------------------------------
Public Finance $122.9 $174.2 - 29% $215.2 $281.4 - 24% Structured
Finance 90.2 79.0 + 14% 169.0 153.1 + 10% International 100.4 69.4
+ 45% 148.3 117.3 + 26% --------------- ---------------- Total
Gross Premiums Written 313.5 322.6 - 3% 532.5 551.8 - 3% Ceded
Premiums Written (57.8) (54.0) + 7% (49.0) (27.4) + 79%
--------------- ---------------- Net Premiums Written $255.7 $268.6
- 5% $483.5 $524.4 - 8% =============== ================ *T -- Net
premiums earned and other credit enhancement fees for the second
quarter of 2006 were $224.9 million, which represented a 9%
increase from the $205.8 million earned in the second quarter of
2005. The increase was driven by higher accelerated premiums from
refundings and policy termination fees and increased normal
premiums earned in U.S. public finance and U.S. structured finance,
partially offset by decreased normal premiums earned in
international. Net premiums earned include accelerated premiums,
which result from refundings, calls and other accelerations
recognized during the quarter. Accelerated premiums were $37.3
million in the second quarter of 2006, up 52% from $24.5 million in
accelerated premiums in the second quarter of 2005. Accelerated
premiums in the second quarter of 2006 include $8.8 million from
termination fees on structured finance and international
transactions. No such fees were included in accelerated premiums in
the second quarter of 2005. Net premiums earned and other credit
enhancement fees for the first half of 2006 were $433.3 million,
which represented a 4% increase from the $417.5 million earned in
the first half of 2005. Accelerated premiums were $62.3 million for
the first half 2006, up 6% from $59.0 million in accelerated
premiums for the first half of 2005. Accelerated premiums in 2006
and 2005 include $7.7 million and $4.5 million, respectively,
related to the impact of reinsurance cancellations occurring in the
first quarter of the respective years. A breakdown of net premiums
earned and other credit enhancement fees by market segment for 2006
and 2005 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 Second Quarter Six Months % %
2006 2005 Change 2006 2005 Change
---------------------------------------------- Public Finance $58.1
$54.6 + 6% $114.0 $109.8 + 4% Structured Finance 77.9 71.7 + 9%
154.8 140.3 + 10% International 51.6 55.0 - 6% 102.2 108.4 - 6%
-------------- ---------------- Total Normal Premiums/Fees 187.6
181.3 + 3% 371.0 358.5 + 3% Accelerated Premiums 37.3 24.5 + 52%
62.3 59.0 + 6% -------------- ---------------- Total $224.9 $205.8
+ 9% $433.3 $417.5 + 4% ============== ================ *T Public
finance earned premiums, before accelerations, grew 6% quarter on
quarter. Earned premium growth in this segment has been negatively
impacted by the competitive pricing environment and compounded by
the high level of refunding activity in Ambac's public finance
book. However, Ambac's historic focus on the high-return structured
sectors of the municipal market has proven beneficial to
maintaining growth in a difficult business environment. Structured
finance earned premiums and other credit enhancement fees grew 9%.
The rate of growth in structured finance has improved as the recent
level of writings in asset classes such as commercial asset-backed
securities, auto securitizations and pooled debt obligations has
increased. Narrow credit spreads and high prepayment speeds in the
mortgage-backed and home equity book of business and early
terminations of transactions in other structured finance sectors
continue to partially offset the positive effects of new business
writings. International earned premiums and other credit
enhancement fees decreased by 6%. The decline was driven primarily
by significant paydowns and calls over the past several quarters, a
slow-down in new business generated in the past several quarters
prior to this quarter, and the recent business mix which has
trended towards long-dated infrastructure transactions that earn
premiums over a longer period of time than typical structured
finance exposures. -- Net investment income for the second quarter
of 2006 was $117.0 million, representing an increase of 12% from
$104.5 million in the comparable period of 2005. Net investment
income excluding net investment income from Variable Interest
Entities ("VIEs") for the second quarter of 2006 was $104.5
million, representing an increase of 13% from $92.2 million in the
second quarter of 2005. This increase was due primarily to growth
in the investment portfolio driven by the ongoing collection of
financial guarantee premiums and fees and a $200 million capital
contribution from the parent company in the fourth quarter of 2005.
Net investment income was also modestly affected by recent
increases in interest rates. 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 six months of 2006 was $230.9
million, representing an increase of 12% from $206.5 million in the
comparable period of 2005, primarily as a result of the reasons
provided above. -- Financial services revenues. The financial
services segment is comprised of the investment agreement business
and the 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, was $10.8 million in the second quarter of 2006, up 227%
from $3.3 million in the second quarter of 2005. The increase was
primarily due to a negative mark-to-market adjustment in the
derivatives products business in the second quarter of 2005 driven
by the increased ratio of tax-exempt to taxable interest rates
during that quarter. Financial services revenues were $22.5 million
in the first half of 2006, up 24% from the $18.2 million of
revenues in the first half of 2005 primarily due to the reason
provided above. Expenses Highlights -- Financial guarantee expenses
of $56.7 million for the second quarter of 2006 decreased by 9%
from the $62.2 million of expenses for the same quarter of 2005.
Financial guarantee loss and loss expenses were $12.8 million in
the second quarter of 2006 down from $21.7 million in the second
quarter of 2005. The $12.8 million loss provision in the second
quarter of 2006 is the result of an increased case reserve for a
healthcare transaction and an increase to loss adjustment expenses
(included as case reserves) offset by net positive migration in the
active credit reserves. See "Loss Reserve Activity," below, for
additional information on losses. Net underwriting and operating
expenses of the financial guarantee segment totaled $31.9 million
in the second quarter of 2006, up 11% from $28.7 million in the
second quarter of 2005 primarily due to increased compensation
expense. Interest expense on VIE notes amounting to $12.0 million
and $11.8 million in the second quarter of 2006 and 2005,
respectively, result from the consolidation of certain trusts that
Ambac has insured and consolidated under accounting pronouncement
FIN 46. Financial guarantee expenses of $107.3 million for the
first six months of 2006 decreased 18% from $130.6 million of
expenses for the same period of 2005. The decrease results
primarily from lower loss expenses partially offset by higher
compensation expenses during the period. Loss Reserve Activity --
Case basis loss reserves (loss reserves for exposures that have
defaulted) increased $17.4 million during the second quarter of
2006 from $121.3 million at March 31, 2006 to $138.7 million at
June 30, 2006. The increase was primarily related to additional
case reserves for a healthcare transaction and an addition to loss
adjustment expense reserves. Paid claims during the quarter
amounting to $20.1 million included a payment on a CDO which had
previously been classified within the active credit reserves, paid
and terminated during the current quarter. -- Active credit
reserves ("ACR") are established for probable and estimable losses
due to credit deterioration on adversely classified insured
transactions. Ambac continuously monitors its insured portfolio
actively seeking to mitigate claims. The ACR decreased by $24.7
million during the quarter, from $171.7 million at March 31, 2006
to $147.0 million at June 30, 2006. The decrease was primarily the
result of net improvements in the classified portfolio and a
transfer of ACR reserves to case reserves for the CDO transaction
noted above. At June 30, 2006, the specific Hurricane
Katrina-related provision amounts to $90.4 million, down slightly
from $91.1 million at March 31, 2006. Approximately $1.1 billion of
Katrina-impacted credits remain in Ambac's adversely classified
credit portfolio. Ambac did not pay any Katrina-related claims
during the quarter. Other Items -- Total net securities
gains/(losses) for the second quarter of 2006 were $51.0 million,
or $0.31 per diluted share; consisting of net realized gains on
investment securities of $44.4 million, net mark-to-market gains on
credit and total return derivatives of $7.2 million and net
mark-to-market losses on non-trading derivative contracts of ($0.6)
million. Approximately $38 million of the net realized gains on
investment securities relate to cash recoveries received during the
quarter related to a security in the investment agreement portfolio
that had been written down in 2002 and 2003. For the second quarter
of 2005, net securities gains/(losses) were $29.6 million, or $0.14
per diluted share; consisting of net realized losses on investment
securities of ($0.6) million, net mark-to-market losses on credit
and total return derivatives of ($17.0) million and net
mark-to-market gains on non-trading derivative contracts of $47.2
million. The mark-to-market gains on non-trading derivative
contracts relate almost entirely to interest rate hedge contracts
related to long-term fixed rate liabilities in Ambac's investment
agreement business that were redesignated during that quarter.
Those hedges were redesignated to meet the technical requirements
of FAS 133 as of July 1, 2005. Total net securities gains/(losses)
for the first half of 2006 were $64.4 million, or $0.38 per diluted
share; consisting of net realized gains on investment securities of
$49.5 million, net mark-to-market gains on credit and total return
derivatives of $14.4 million and net mark-to-market gains on
non-trading derivative contracts of $0.5 million. For the first
half of 2005 net securities gains were $38.8 million, or $0.19 per
diluted share; consisting of net realized gains on investment
securities of $1.3 million, mark-to-market losses on credit
derivatives and total return swaps of ($10.9) million and net
mark-to-market gains on non-trading derivative contracts of $48.4
million. Balance Sheet Highlights -- Total assets as of June 30,
2006 were $20.27 billion, up 3% from total assets of $19.73 billion
at December 31, 2005. The increase was driven by cash generated
from operations during the period, partially offset by a decrease
in unrealized gains in the investment portfolio driven by higher
long-term interest rates. As of June 30, 2006, stockholders' equity
was $5.63 billion, a 5% increase from year-end 2005 stockholders'
equity of $5.37 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.
Increased Cash Dividend Declared At its July 2006 Board meeting,
the Board of Directors of Ambac Financial Group Inc. approved a 20%
increase in the regular quarterly cash dividend from $0.15 to $0.18
per share of common stock. The dividend is payable on September 6,
2006 to stockholders of record on August 10, 2006. Ambac has
declared an increased cash dividend in every year since going
public in 1991. Forward-Looking Statements This release, in
particular the Chairman 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).
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 discount rate used to measure the present value of
estimated installment premiums was 5.6% and 7% during the second
quarter of 2006 and 2005, respectively. 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: -0- *T $-millions Second Quarter Six
Months 2006 2005 2006 2005 ------------------------------------
Credit enhancement production $531 $398 $764 $597 Present value of
estimated installment premiums written on insurance policies and
structured credit derivatives issued in the period (358) (208)
(494) (302) ------------------------------------ Gross up-front
premiums written $ 173 $ 190 $270 $295 Gross installment premiums
written on insurance policies 140 133 262 257
------------------------------------ Gross premiums written $313
$323 $532 $552 ==================================== *T (2)
Operating earnings and core earnings are not substitutes for net
income computed in accordance with GAAP, but are useful measures of
performance used by management, equity analysts and investors.
Operating earnings measures income from operations excluding the
impact of investment portfolio realized gains and losses,
mark-to-market gains and losses from certain non-trading derivative
instruments and certain other items. Core earnings further exclude
the impact of refundings, calls and other accelerations. The
definitions of operating earnings and core earnings used by Ambac
may differ from definitions of operating earnings and core earnings
used by other public holding companies of financial guarantors. -0-
*T Ambac Financial Group, Inc. and Subsidiaries Consolidated
Statements of Operations (Unaudited) For the Three and Six Months
Ended June 30, 2006 and 2005 (Dollars in Thousands Except Share
Data) Three Months Ended Six Months Ended June 30, June 30,
------------------------- ------------------------- 2006 2005 2006
2005 ------------------------- ------------------------- Revenues:
Financial Guarantee: Gross premiums written $313,458 $322,628
$532,465 $551,754 Ceded premiums written (57,747) (54,038) (48,990)
(27,411) ------------ ------------ ------------ ------------ Net
premiums written $255,711 $268,590 $483,475 $524,343 ============
============ ============ ============ Net premiums earned $210,788
$193,242 $404,968 $392,876 Other credit enhancement fees 14,155
12,536 28,343 24,603 ------------ ------------ ------------
------------ Net premiums earned and other credit enhancement fees
224,943 205,778 433,311 417,479 Net investment income 116,983
104,450 230,938 206,458 Net realized investment gains (losses)
1,892 (1,030) 1,513 991 Net mark-to- market gains (losses) on
credit derivative contracts 5,381 (11,606) 7,334 (6,340) Other
income 2,930 906 32,384 3,291 Financial Services: Interest from
investment and payment agreements 98,048 64,416 179,983 122,097
Derivative products 3,321 (3,759) 8,007 4,306 Net realized
investment gains 41,728 443 47,231 288 Net mark-to- market gains
(losses) on total return swap contracts 1,818 (5,350) 7,041 (4,602)
Net mark-to- market (losses) gains on non- trading derivatives
(306) 48,235 (62) 48,926 Corporate: Net investment income 3,396 396
6,396 805 Net realized investment gains 791 - 791 - ------------
------------ ------------ ------------ Total revenues 500,925
402,879 954,867 793,699 ------------ ------------ ------------
------------ Expenses: Financial Guarantee: Loss and loss expenses
12,822 21,657 12,949 45,129 Underwriting and operating expenses
31,871 28,692 69,767 62,095 Interest expense on variable interest
entity notes 11,958 11,816 24,581 23,395 Financial Services:
Interest from investment and payment agreements 90,533 57,399
165,498 108,179 Other expenses 3,303 3,431 6,875 7,250 Interest
19,475 13,513 38,950 27,026 Corporate 4,000 5,461 7,643 7,743
------------ ------------ ------------ ------------ Total expenses
173,962 141,969 326,263 280,817 ------------ ------------
------------ ------------ Income before income taxes 326,963
260,910 628,604 512,882 Provision for income taxes 88,393 74,812
168,894 141,241 ------------ ------------ ------------ ------------
Net income $238,570 $186,098 459,710 371,641 ============
============ ============ ============ Net income per share $2.24
$1.71 $4.32 $3.39 ============ ============ ============
============ Net income per diluted share $2.22 $1.69 $4.28 $3.35
============ ============ ============ ============ Weighted
average number of common shares outstanding: Basic 106,485,245
109,098,498 106,462,001 109,641,520 ============ ============
============ ============ Diluted 107,450,639 110,327,148
107,398,480 110,990,318 ============ ============ ============
============ Ambac Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets June 30, 2006 and December 31, 2005
(Dollars in Thousands Except Share Data) June 30, December 31, 2006
2005 ------------ ------------ (unaudited) Assets ------
Investments: Fixed income securities, at fair value (amortized cost
of $16,444,737 in 2006 and $14,781,028 in 2005) $16,517,931
$15,124,016 Fixed income securities pledged as collateral, at fair
value (amortized cost of $380,450 in 2006 and $378,480 in 2005)
371,702 371,160 Short-term investments, at cost (approximates fair
value) 241,798 472,034 Other (cost of $13,458 in 2006 and $13,537
in 2005) 14,302 14,173 ------------ ------------ Total investments
17,145,733 15,981,383 Cash 32,795 28,295 Securities purchased under
agreements to resell 200,000 419,000 Receivable for securities sold
2,578 2,161 Investment income due and accrued 182,352 178,779
Reinsurance recoverable on paid and unpaid losses 5,279 3,730
Prepaid reinsurance 310,790 303,383 Deferred acquisition costs
213,086 202,195 Loans 1,196,678 1,344,140 Derivative assets 878,594
1,102,649 Other assets 105,885 159,425 ------------ ------------
Total assets $20,273,770 $19,725,140 ============ ============
Liabilities and Stockholders' Equity
------------------------------------ Liabilities: Unearned premiums
$3,042,128 $2,954,718 Loss and loss expense reserve 291,026 304,139
Ceded reinsurance balances payable 38,080 23,746 Obligations under
investment and payment agreements 7,585,058 7,056,222 Obligations
under investment repurchase agreements 166,227 196,568 Securities
sold under agreement to repurchase 20,000 - Deferred income taxes
132,462 257,987 Current income taxes 87,694 16,726 Long-term debt
2,164,061 2,233,582 Accrued interest payable 78,321 108,195
Derivative liabilities 650,188 935,440 Other liabilities 243,559
253,969 Payable for securities purchased 144,745 11,641
------------ ------------ Total liabilities 14,643,549 14,352,933
------------ ------------ Stockholders' equity: Preferred stock - -
Common stock 1,092 1,092 Additional paid-in capital 745,337 723,680
Accumulated other comprehensive income 42,323 202,312 Retained
earnings 5,083,048 4,692,701 Common stock held in treasury at cost
(241,579) (247,578) ------------ ------------ Total stockholders'
equity 5,630,221 5,372,207 ------------ ------------ Total
liabilities and stockholders' equity $20,273,770 $19,725,140
============ ============ Number of shares outstanding (net of
treasury shares) 105,795,481 105,639,446 ============ ============
Book value per share $53.22 $50.85 ============ ============ Ambac
Assurance Corporation and Subsidiaries Capitalization Table - GAAP
June 30, 2006 and December 31, 2005 (Dollars in Millions) The
following table sets forth Ambac Assurance's consolidated
capitalization as of June 30, 2006 and December 31, 2005,
respectively, on the basis of accounting principles generally
accepted in the United States of America. June 30, December 31,
2006 2005 ------------- ------------- (unaudited) Unearned premiums
$3,052 $2,966 Long-term debt 972 1,042 Other liabilities 1,770
1,996 ------------- ------------- Total liabilities 5,794 6,004
------------- ------------- Stockholder's equity: Common stock 82
82 Additional paid-in capital 1,467 1,453 Accumulated other
comprehensive income 10 137 Retained earnings 4,875 4,499
------------- ------------- Total stockholder's equity 6,434 6,171
------------- ------------- Total liabilities and stockholder's
equity $12,228 $12,175 ============= ============= *T
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