Fourth Quarter Credit Enhancement Production(1) $395.8 million, up
15% Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today announced
fourth quarter 2005 net income of $204.3 million, or $1.90 per
diluted share. This represents an 8% increase from fourth quarter
2004 net income of $188.8 million, and a 12% increase in net income
per diluted share from $1.69 in the fourth quarter of 2004. 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 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 fourth quarter 2005, net
security gains and losses had the effect of increasing net income
by $13.2 million, $0.12 on a per diluted share basis. Accelerated
earnings had the effect of increasing net income by $20.3 million,
or $0.19 per diluted share for the fourth quarter 2005. Table I,
below, provides fourth quarter and full year comparisons of
earnings for 2005 and 2004. -0- *T Table I Fourth Quarter Full Year
% % 2005 2004 Change 2005 2004 Change
-------------------------------------------- Net income per diluted
share $1.90 $1.69 + 12% $6.87 $6.53 + 5% Effect of net security
gains ($0.12)($0.09) n.a. ($0.40)($0.27) n.a. Non-recurring and
other(a) $0.00 ($0.01) n.a. $0.00 ($0.03) n.a. --------------
-------------- Sub-total excluding effect of net security
gains/losses and non- recurring items(b) $1.78 $1.59 + 12% $6.47
$6.23 + 4% Effect of Accelerated earnings ($0.19)($0.07) n.a.
($0.74)($0.40) n.a. -------------- -------------- Total excluding
items $1.59 $1.52 + 5% $5.73 $5.83 - 2% ==============
============== (a) 2004 fourth quarter and full year results have
been adjusted by $1.2 million and $4.7 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 top-line credit enhancement production results are encouraging
as we successfully closed a wide array of transactions during the
quarter, including a few deals of significant size. Overall, market
conditions remain challenging, yet our experienced professionals
continue to identify new and attractive opportunities across a
broad spectrum of asset classes and geographic locations. I remain
cautiously optimistic going into 2006 as demand for our core
financial guaranty product seems to be on the rise." Revenues
Highlights Credit enhancement production(1) in the fourth quarter
of 2005 was $395.8 million, up 15% from the fourth quarter of 2004
which came in at $344.2 million. Strong growth in U.S. public
finance and U.S. structured finance were partially offset by a
decline in international. Credit enhancement production for the
full year 2005 of $1,249.4 million was 3% lower than credit
enhancement production of $1,287.8 million in 2004, driven by
tighter credit spreads across many of the markets Ambac serves and
a slow down in transactions in the international market, primarily
Europe. Table II, below, provides the fourth quarter and full year
comparisons of credit enhancement production by market sector for
2005 and 2004. -0- *T Table II Credit Enhancement Production(1)
$-millions Fourth Quarter Full Year % % 2005 2004 Change 2005 2004
Change ------------------------------------------------ U.S. Public
Finance $153.5 $101.5 + 51% $550.8 $542.0 + 2% U.S. Structured
Finance 143.4 88.5 + 62% 479.0 378.8 + 26% International 98.9 154.2
- 36% 219.6 367.0 - 40% -------------- ------------------ Total
$395.8 $344.2 + 15% $1,249.4 $1,287.8 - 3% ==============
================== *T In Public Finance, municipal market issuance,
as reported by third party sources, was 6% higher in the fourth
quarter of 2005 than in the comparable prior period while insured
market penetration at approximately 51% was slightly lower than
fourth quarter of 2004. Transactions guaranteed during the quarter
included strong writings in the health care and tax revenue
sectors. Spreads in U.S. public finance are steady and fairly
attractive, however, pricing has been impacted by increased
competition from other financial guarantors. U.S. structured
finance production during the quarter was strong as significant
commercial asset-backed securitization activity and a large auto
rental securitization was partially offset by lower mortgage-backed
securities writings. Current year production was very strong
including transactions across diverse asset classes despite strong
competition from the market in the form of senior/subordination
execution in many sectors. International production was good but
significantly lower than the comparable prior period's strong
production. Current year production included attractive business in
diverse geographic regions and asset classes including investor
owned utilities, structured finance and future flow deals. The
international segment production remains volatile primarily due to
long transaction closing cycles typically caused by the size and
complexity of the deals. Net premiums written in the fourth quarter
of 2005 of $268.1 million were 26% higher than net premiums written
of $213.2 million in the same period of 2004. Gross premiums
written in the fourth quarter of 2005 and 2004 were offset by $37.9
million and $34.4 million, respectively, in ceded premiums. Ceded
premiums as a percentage of gross premiums written were 12% and 14%
for the fourth quarter of 2005 and 2004, respectively. Net premiums
written for the full year 2005 of $996.0 million were 2% higher
than net premiums written of $976.9 million in 2004. Excluding the
impact of return premiums from reinsurance cancellations in each of
2005 and 2004 ($55.8 million in the first quarter of 2005 and $64.8
million in the second quarter of 2004), net premiums written were
up 3%, period on period. Ceded premiums as a percentage of gross
premiums written, excluding the impact of return premiums, were 14%
and 13% for the full year 2005 and 2004, respectively. A breakdown
of gross premiums written by market sector and ceded premiums for
the fourth quarter and full year 2005 and 2004 are included below
in Table III. -0- *T Table III Premiums Written $-millions Fourth
Quarter Full Year % % 2005 2004 Change 2005 2004 Change
---------------------------------------------- U.S. Public Finance
$159.1 $105.7 + 51% $552.2 $537.6 + 3% U.S. Structured Finance 83.3
70.6 + 18% 314.5 281.7 + 12% International 63.6 71.3 - 11% 229.0
228.5 0% -------------- ---------------- Total Gross Premiums
Written 306.0 247.6 + 24% 1,095.7 1,047.8 + 5% Ceded Premiums
Written (37.9) (34.4) + 10% (99.7) (70.9) + 41% --------------
---------------- Net Premiums Written $268.1 $213.2 + 26% $996.0
$976.9 + 2% ============== ================ *T Net premiums earned
and other credit enhancement fees for the fourth quarter of 2005
were $217.5 million, which represented a 14% increase from the
$190.4 million earned in the fourth quarter of 2004. Increases in
net premiums earned in U.S. public finance and U.S. structured
finance were partially offset by decreased net 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 $35.4
million in the fourth quarter of 2005 (which had a net income per
diluted share effect of $0.19), up 179% from $12.7 million ($0.07
per diluted share) in accelerated premiums in the fourth quarter of
2004. The majority of the accelerated premiums relate to the U.S.
public finance segment. The current quarter was once again impacted
by one large public finance refunded transaction, representing 41%
of the total accelerated amount. Long-term interest rates remained
relatively low during the year and we experienced extremely high
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 full year 2005 were $866.1 million, which represented a 13%
increase from $764.0 million earned in 2004. Accelerated premiums
were $143.3 million for the full year 2005 ($0.74 per diluted
share), up 75% from $81.9 million ($0.40 per diluted share) in
accelerated premiums in 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 fourth quarter and full year 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 Fourth Quarter Full Year % % 2005 2004
Change 2005 2004 Change
-------------------------------------------- U.S. Public Finance
$56.9 $54.1 + 5% $223.6 $207.4 + 8% U.S. Structured Finance 76.8
70.0 + 10% 288.5 273.3 + 6% International 48.4 53.6 - 10% 210.7
201.4 + 5% -------------- -------------- Total Normal Premiums/Fees
182.1 177.7 + 2% 722.8 682.1 + 6% Accelerated Premiums/Fees 35.4
12.7 + 179% 143.3 81.9 + 75% -------------- -------------- Total
$217.5 $190.4 + 14% $866.1 $764.0 + 13% ==============
============== *T Public finance earned premiums, before
accelerations, grew 5% quarter on quarter. 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 combined with a mix of issuance in 2005 with less
structured municipal transactions that Ambac typically focuses on,
has negatively impacted the growth in earnings in this segment.
Structured finance earned premiums and other credit enhancement
fees grew 10%. The rate of growth in structured finance has slowed
over the past two years, adversely impacted by lower premium
production in mortgage-backed and home equity securitizations and
pooled debt obligations. These short-term asset classes had
experienced significant growth in years prior to 2004. Narrow
credit spreads and increased competitive factors have recently led
to lower writings in these segments, which combined with the high
level of principal pay downs (mortgage-backed securities) and deal
terminations (CDOs) has reduced the size of the respective
portfolios, resulting in lower earnings from these specific asset
classes. The reduced earnings from MBS and CDOs has been offset
recently by increased production and related earnings in other
asset classes such as commercial asset-backed and auto
securitizations where Ambac finds attractive risk/return dynamics.
International earned premiums and other credit enhancement fees
decreased by 10%. The decline was driven primarily by three
factors: (i) recent calls of international transactions; (ii) a
general slow-down in new business generation in this segment as
credit spreads have narrowed, reducing the need for financial
guarantee protection; and (iii) the business mix has trended
towards long-tailed infrastructure transactions as opposed to the
shorter-tenor asset-backed securities such as MBS and CDOs. Net
investment income for the fourth quarter of 2005 was $109.0
million, representing an increase of 16% from $94.0 million in the
comparable period of 2004. Net investment income excluding net
investment income from Variable Interest Entities ("VIEs") for the
fourth quarter of 2005 was $96.7 million, representing an increase
of 6% from $90.9 million in the fourth 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, partially offset by a lower reinvestment rate
and use of cash for repurchases of Ambac stock during the second
and third quarters of 2005 totaling approximately $300 million. Net
investment income from VIEs for the fourth quarter of 2005 was
$12.3 million, up from $3.1 million in the fourth 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 full year 2005
was $426.1 million, representing an increase of 18% from $361.1
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 $11.4 million in the fourth quarter of 2005, down
21% from $14.6 million in the fourth quarter of 2004. The decrease
was driven by lower inception revenues on new business in the
derivative products business, partially offset by spread
improvement in the investment agreement business. Financial
services revenues, as defined above, were $46.8 million in the full
year 2005, down 16% from $56.3 million in 2004, primarily due to
lower inception revenues in the derivative products business.
Expenses Highlights Financial guarantee expenses of $55.9 million
for the fourth quarter of 2005 increased by 24% over the $45.2
million of expenses for the same quarter of 2004. Financial
guarantee loss and loss expenses were $15.6 million in the fourth
quarter of 2005 down 8% from $16.9 million in the fourth quarter of
2004. Net underwriting and operating expenses of the financial
guarantee segment totaled $27.9 million in the fourth quarter of
2005, up 10% from $25.3 in the fourth quarter of 2004. Interest
expense on VIE notes amounting to $12.4 million and $3.0 million in
the fourth 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 $315.1 million for the full year 2005
increased by 74% over $181.3 million in 2004. Financial guarantee
loss and loss expenses of $149.9 million in 2005 increased 115%
from $69.6 million in 2004 primarily due to the third quarter 2005
$92 million reserve provisioning related to Hurricane Katrina. Net
underwriting and operating expenses of the financial guarantee
segment for the full year 2005 were $117.8 million, up 11% from
$106.6 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 $3.5
million for the fourth quarter of 2005, down 17% from $4.2 million
in the comparable prior period. Financial services other expenses
for the full year 2005 of $13.7 million decreased 7% from $14.7
million in 2004. Loss Reserve Activity Case basis loss reserves
(loss reserves for exposures that have defaulted) increased $20.2
million during the fourth quarter of 2005 from $82.9 million at
September 30, 2005 to $103.1 million at December 31, 2005. The
increase was primarily related to a new case reserve established
during the quarter for a public finance infrastructure transaction
and an addition to an existing case reserve for a stressed health
care transaction. 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 $7.2 million during the quarter, primarily as
a result of net improvement in the classified portfolio and a
transfer of ACR reserves to case reserves related to the public
finance infrastructure transaction discussed above. At December 31,
2005, the specific Hurricane Katrina-related provision amounted to
$91.5 million, down slightly from $92.0 million at September 30 due
to amortization and pay downs on effected credits. Approximately
$1.1 billion of Katrina-impacted credits are included in Ambac's
adversely classified credit portfolio. Ambac did not pay any
Katrina-related claims during the quarter and has fully recovered
the amounts paid in the third quarter. Ambac's estimate of losses
related to the hurricane does not consider any potential, federal,
state or local government assistance to individual municipalities
or institutions as such assistance still has not been determined.
The credit loss estimation process involves the exercise of
considerable judgment. Ambac will continue to assess the impact of
Hurricane Katrina on subsequent periods as more information becomes
available to us and the ultimate actual loss associated with the
hurricane may be materially different than the current estimate and
thereby may affect future operating results. Other Items Total net
securities gains/(losses) for the fourth quarter of 2005 were $20.0
million, or $0.12 per diluted share; consisting of net realized
losses on investment securities of ($2.2) million, net
mark-to-market gains on credit and total return derivatives of
$22.0 million and net mark-to-market gains on non-trading
derivative contracts of $0.2 million. For the fourth quarter of
2004, net securities gains/(losses) were $16.5 million, or $0.09
per diluted share; consisting of net realized gains on investment
securities of $7.5 million, net mark-to-market gains on credit and
total return derivatives of $11.9 million and net mark-to-market
losses on non-trading derivative contracts of ($2.9) million. Total
net securities gains/(losses) for the full year 2005 were $73.1
million, or $0.40 per diluted share, consisting of net realized
gains on investment securities of $8.6 million, net mark-to-market
gains on credit and total return derivatives of $15.0 million and
net mark-to-market gains on non-trading derivative contracts of
$49.5 million. As discussed in the previous quarters, 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. The hedges
have been 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 full year 2004 net securities gains were
$45.8 million, or $0.27 per diluted share, consisting of net
realized gains on investment securities of $35.1 million, net
mark-to-market gains on credit and total return derivatives of
$27.1 million and net mark-to-market losses on non-trading
derivative contracts of ($16.4) million. Balance Sheet Highlights
Total assets as of December 31, 2005 were $19.77 billion, up 5%
from total assets of $18.75 billion at December 31, 2004. The
increase was driven by cash generated from business written during
the period and the proceeds of the $400 debt issuance in December
2005 (discussed below), offset by stock repurchases during the
period and the decrease in the unrealized gains in the investment
portfolio driven by higher long-term interest rates. As of December
31, 2005, stockholders' equity was $5.40 billion, a 7% increase
from year-end 2004 stockholders' equity of $5.02 billion. The
increase was primarily the result of net income during the year,
offset by stock repurchases and lower "Accumulated Other
Comprehensive Income" driven by slightly higher long-term interest
rates. As previously announced, in December Ambac issued $400
million of 5.95% Debentures due December 2035. The Company intends
to use a portion of the proceeds to redeem all or portion of the
7.00% Debentures due in 2051 on or after their first call date in
October 2006. The use of proceeds to redeem the outstanding
Debentures in October 2006 will result in subsequent net interest
savings to the company of approximately $2 million per year. The
remaining proceeds from the offering will provide additional funds
for general corporate purposes. Cash Dividend Declared At its
January 2006 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
March 1, 2006 to stockholders of record on February 10, 2006.
Annual Meeting of Stockholders The Board of Directors also set the
2006 Annual Meeting of Stockholders for Tuesday, May 2, 2006, at
11:30 a.m. in New York City. The record date for determining
stockholders entitled to notice of, and to vote at, the annual
meeting will be the close of business, March 6, 2006.
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).
Footnotes -0- *T (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
Fourth Quarter Full Year 2005 2004 2005 2004
------------------------------------ Credit enhancement production
$396 $344 $1,249 $1,288 Present value of estimated installment
premiums written on insurance policies and structured credit
derivatives issued in the period (229) (219) (673) (713)
------------------------------------ Gross up-front premiums
written $ 167 $ 125 $576 $575 Gross installment premiums written on
insurance policies 139 122 520 473
------------------------------------ Gross premiums written $306
$247 $1,096 $1,048 ==================================== *T -0- *T
Ambac Financial Group, Inc. and Subsidiaries Consolidated
Statements of Operations (Unaudited) For the Three Months and Years
Ended December 31, 2005 and 2004 (Dollars in Thousands Except Share
Data) Three Months Ended Years Ended December 31, December 31,
------------------------- ------------------------- 2005 2004 2005
2004 ------------------------- ------------------------- Revenues:
Financial Guarantee: Gross premiums written $306,022 $247,594
$1,095,719 $1,047,811 Ceded premiums written (37,966) (34,360)
(99,673) (70,946) ------------ ------------ ------------
------------ Net premiums written $268,056 $213,234 $996,046
$976,865 ============ ============ ============ ============ Net
premiums earned $205,046 $178,132 $816,020 $716,659 Other credit
enhancement fees 12,474 12,242 50,091 47,326 ------------
------------ ------------ ------------ Net premiums earned and
other credit enhancement fees 217,520 190,374 866,111 763,985 Net
investment income 109,010 93,998 426,114 361,086 Net realized
investment gains 303 7,481 6,307 30,004 Net mark-to- market gains
on credit derivative contracts 18,403 7,846 13,618 17,734 Other
income (loss) 6,161 5,912 12,311 (4,102) Financial Services:
Interest from investment and payment agreements 77,348 52,258
270,299 198,800 Derivative products 2,555 6,130 15,757 26,399 Net
realized investment (losses) gains (2,494) 86 2,314 5,099 Net
mark-to- market gains on total return swap contracts 3,585 4,075
1,330 9,376 Net mark-to- market (losses) gains on non- trading
derivatives (4,668) (3,455) 44,201 (3,329) Corporate: Net
investment income 2,025 502 3,345 1,674 Net realized investment
losses - (36) - (18) ------------ ------------ ------------
------------ Total revenues 429,748 365,171 1,661,707 1,406,708
------------ ------------ ------------ ------------ Expenses:
Financial Guarantee: Loss and loss expenses 15,601 16,900 149,856
69,600 Underwriting and operating expenses 27,870 25,264 117,809
106,563 Interest expense on variable interest entity notes 12,432
3,042 47,450 5,144 Financial Services: Interest from investment and
payment agreements 68,474 43,837 239,255 168,943 Other expenses
3,521 4,246 13,683 14,671 Interest 15,243 13,514 55,896 54,322
Corporate 3,703 3,215 14,994 10,683 ------------ ------------
------------ ------------ Total expenses 146,844 110,018 638,943
429,926 ------------ ------------ ------------ ------------ Income
before income taxes 282,904 255,153 1,022,764 976,782 Provision for
income taxes 78,652 66,382 271,754 250,942 ------------
------------ ------------ ------------ Income from continuing
operations 204,252 188,771 751,010 725,840 ------------
------------ ------------ ------------ Discontinued operations:
Loss from discontinued operations - - - (1,349) Income tax benefit
- - - (60) ------------ ------------ ------------ ------------ Net
loss from discontinued operations - - - (1,289) ------------
------------ ------------ ------------ Net income $204,252 $188,771
$751,010 $724,551 ============ ============ ============
============ Earnings per share: Income from continuing operations
$1.92 $1.72 $6.94 $6.62 Discontinued operations $0.00 $0.00 $0.00
($0.01) ------------ ------------ ------------ ------------ Net
income $1.92 $1.72 $6.94 $6.61 ============ ============
============ ============ Earnings per diluted share: Income from
continuing operations $1.90 $1.69 $6.87 $6.54 Discontinued
operations $0.00 $0.00 $0.00 ($0.01) ------------ ------------
------------ ------------ Net income $1.90 $1.69 $6.87 $6.53
============ ============ ============ ============ Weighted
average number of common shares outstanding: Basic 106,445,909
110,022,089 108,280,281 109,602,601 ============ ============
============ ============ Diluted 107,534,753 111,459,460
109,394,985 110,898,854 ============ ============ ============
============ Ambac Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets December 31, 2005 and December 31, 2004
(Dollars in Thousands Except Share Data) December 31, December 31,
2005 2004 ------------ ------------ (unaudited) Assets ------
Investments: Fixed income securities, at fair value (amortized cost
of $14,781,028 in 2005 and $13,425,475 in 2004) $15,124,016
$13,901,218 Fixed income securities pledged as collateral, at fair
value (amortized cost of $378,480 in 2005 and $345,195 in 2004)
371,160 341,742 Short-term investments, at cost (approximates fair
value) 472,034 521,226 Other (cost of $13,537 in 2005 and $3,731 in
2004) 14,173 4,234 ------------ ------------ Total investments
15,981,383 14,768,420 Cash 28,295 19,957 Securities purchased under
agreements to resell 419,000 353,000 Receivable for securities sold
2,161 1,319 Investment income due and accrued 178,779 162,506
Reinsurance recoverable on paid and unpaid losses 3,730 16,765
Prepaid reinsurance 303,383 297,330 Deferred acquisition costs
202,195 184,766 Loans 1,344,140 1,405,700 Derivative assets
1,101,948 1,462,320 Other assets 204,096 77,523 ------------
------------ Total assets $19,769,110 $18,749,606 ============
============ Liabilities and Stockholders' Equity
------------------------------------ Liabilities: Unearned premiums
$2,954,718 $2,778,893 Loss and loss expense reserve 304,139 254,055
Ceded reinsurance balances payable 23,746 18,248 Obligations under
investment and payment agreements 7,056,222 6,813,914 Obligations
under investment repurchase agreements 196,568 266,806 Deferred
income taxes 277,422 217,373 Current income taxes 16,726 16,406
Long-term debt 2,233,582 1,866,207 Accrued interest payable 108,195
71,058 Derivative liabilities 935,440 1,213,451 Other liabilities
253,969 208,732 Payable for securities purchased 11,641 6
------------ ------------ Total liabilities 14,372,368 13,725,149
------------ ------------ Stockholders' equity: Preferred stock - -
Common stock 1,092 1,089 Additional paid-in capital 723,680 694,465
Accumulated other comprehensive income 226,847 296,814 Retained
earnings 4,692,701 4,032,089 Common stock held in treasury at cost
(247,578) - ------------ ------------ Total stockholders' equity
5,396,742 5,024,457 ------------ ------------ Total liabilities and
stockholders' equity $19,769,110 $18,749,606 ============
============ Number of shares outstanding (net of treasury shares)
105,639,446 108,915,944 ============ ============ Book value per
share $51.09 $46.13 ============ ============ Ambac Assurance
Corporation and Subsidiaries Capitalization Table - GAAP December
31, 2005 and December 31, 2004 (Dollars in Millions) The following
table sets forth Ambac Assurance's consolidated capitalization as
of December 31, 2005 and December 31, 2004, respectively, on the
basis of accounting principles generally accepted in the United
States of America. December 31, December 31, 2005 2004 ------------
------------ (unaudited) Unearned premiums $2,966 $2,783 Long-term
debt 1,042 1,074 Other liabilities 1,996 2,199 ------------
------------ Total liabilities 6,004 6,056 ------------
------------ Stockholder's equity: Common stock 82 82 Additional
paid-in capital 1,453 1,233 Accumulated other comprehensive income
137 238 Retained earnings 4,499 4,094 ------------ ------------
Total stockholder's equity 6,171 5,647 ------------ ------------
Total liabilities and stockholder's equity $12,175 $11,703
============ ============ *T
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