Ambac Financial Group, Inc. Announces First Quarter Net Income of
$171.6 Million, Up 24% First Quarter Net Income Per Diluted Share
of $1.55, Up 22% NEW YORK, April 21 /PRNewswire-FirstCall/ -- Ambac
Financial Group, Inc. (Ambac) today announced first quarter 2004
net income of $171.6 million, or $1.55 per diluted share. This
represents a 24% increase from first quarter 2003 net income of
$137.9 million, and a 22% increase in net income per diluted share
from $1.27 per diluted share in the first quarter of 2003. Net
Income Per Diluted Share Ambac presents net income and net income
per diluted share. These measures are computed in accordance with
accounting principles generally accepted in the United States of
America (GAAP). However, the research analysts have not adjusted
their reporting of earnings to a strictly GAAP basis. In order to
assist investors in their understanding of quarterly results, Ambac
will provide other useful information. Earnings measures reported
by research analysts typically exclude net gains and losses from
sales of investment securities and mark-to-market gains and losses
on credit derivative contracts and derivative hedge contracts ("net
security gains and losses") and non-recurring items. Certain
research analysts further exclude the impact of accelerated
premiums earned on guaranteed obligations that have been refunded
("refundings"). During the first quarter 2004, net security gains
and losses had a net income effect of $6.3 million, $0.05 on a per
diluted share basis. Refundings had a net income effect of $8.7
million, or $0.08 per diluted share for the first quarter 2004.
Table I, below, provides first quarter comparisons for the years
2004 and 2003. Table I First Quarter 2004 2003 % Change Net income
per diluted share $ 1.55 $ 1.27 + 22% Effect of net security gains
($ 0.05) ($ 0.02) n.a. Non-recurring items(1) $ 0.00 $ 0.04 n.a.
Sub-total excluding effect of net security gains/losses and
non-recurring items(2) $ 1.50 $ 1.29 +16% Effect of refundings ($
0.08) ($ 0.06) n.a. Sub-total excluding items $ 1.42 $ 1.23 +15%
(1) 2003 amount represents the write off of previously deferred
issuance expenses related to redeemed debentures. (2) 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. Commenting on the overall
results, Ambac President and CEO, Robert J. Genader, noted, "Ambac
achieved solid bottom line growth with both earnings and returns
meeting or exceeding our long-term targets. Top line activity was
acceptable considering the scarcity of large, high-premium deals in
the market. In recent weeks, transaction flow and average size has
picked up. Given the continued expansion of the worldwide capital
debt markets, we remain encouraged about future opportunities."
Revenues Highlights Adjusted gross premiums written(1) in the first
quarter of 2004 were $258.8 million, down 20% from the first
quarter of 2003 of $322.4 million. Premium growth in public finance
was more than offset by declines in structured and international
finance. Business opportunities and flow during the quarter were
encouraging, however, there were relatively few large transactions
closed during the quarter. This compares to the first quarter 2003,
which had several large transactions close including one
international transportation deal that represented almost 20% of
the total adjusted gross premiums written in that quarter. In
public finance, Ambac continues to see strong business flow in many
areas. Transactions guaranteed during the quarter included strong
writings in the health care, general obligation, municipal lease
and education sectors of the market. In structured finance,
acceptable business activity in certain consumer and commercial
asset-backed securitizations was more than offset by the decline in
collateralized debt obligations and mortgage-backed securities.
Activity in international finance remains strong across several
sectors, however, as noted above, the comparable quarter of 2003
had a very large transportation transaction close, resulting in a
difficult comparison. A breakdown of adjusted gross premiums
written by market sector is included below as Table II. Table II
Adjusted Gross Premiums Written $-millions First Quarter 2004 2003
% Change Public Finance $ 96.9 $ 78.1 + 24% Structured Finance 77.2
117.7 - 34% International 84.7 126.6 - 33% Total $ 258.8 $ 322.4 -
20% * Net premiums written in the first quarter of 2004 of $192.5
million were 16% higher than net premiums written of $166.1 million
in the same period of 2003. In the first quarter of 2004, $33.9
million in ceded premiums offset gross premiums written. In the
first quarter of 2003, ceded premiums were $31.2 million. Ceded
premiums as a percentage of gross premiums written were 15.0% and
15.8% for the first quarter of 2004 and 2003, respectively. * Net
premiums earned and other credit enhancement fees for the first
quarter of 2004 were $176.9 million, which represented a 22%
increase from the $145.1 million earned in the first quarter of
2003. Net premiums earned increased for all market segments. Public
finance, our most mature market segment, continues to exhibit a
strong growth trend as its earned premium grew 19%, enhanced by the
company's continued focus on structured municipal transactions.
Both structured finance and international grew 23%. The exceptional
growth in earned premium in the structured finance and
international segments that has been exhibited over the past
several years has moderated as those lines of business have grown
significantly in the past few years, resulting in more difficult
comparisons quarter on quarter. Additionally, lower writings of
collateralized debt obligations and mortgage-backed securities over
recent quarters and the continued high level of pay-downs in the
mortgage-backed securities book impacted earned premiums in those
two segments. Net premiums earned includes accelerated premiums,
which result from refundings and calls recognized during the
quarter. Accelerated premiums were $15.2 million in the first
quarter of 2004 (which had a net income per diluted share effect of
$0.08), up 25% from $12.2 million ($0.06 per diluted share) in
accelerated premiums in the first quarter of 2003. The current low
interest rate environment has prompted the relatively high level of
accelerated premiums. When interest rates rise in the future,
accelerated premiums should decline. A breakdown of net premiums
earned and other credit enhancement fees by market sector are
included below as Table III. Normal net premiums earned exclude
accelerated premiums that result from refundings and calls. Table
III Net Premiums Earned and Other Credit Enhancement Fees
$-millions First Quarter 2004 2003 % Change Public Finance $ 48.9 $
41.0 + 19% Structured Finance 65.8 53.6 + 23% International 47.0
38.3 + 23% Total Normal Premiums/Fees $ 161.7 $ 132.9 + 22%
Accelerated Premiums 15.2 12.2 + 25% Total $ 176.9 $ 145.1 + 22% *
Net investment income for the first quarter of 2004 was $86.7
million, representing an increase of 13% from $76.6 million in the
comparable period of 2003. This increase was due primarily to the
growth in the investment portfolio from ongoing collection of
financial guarantee premiums. Investment income was also positively
impacted by the proceeds from Ambac's debt offering in February
2003. The growth was partially offset by lower reinvestment rates.
* Financial services revenues, which is composed of gross interest
income less gross interest expense from investment and payment
agreements plus revenue from derivative products and excludes net
realized investment gains and losses, were $17.1 million in the
first quarter of 2004, 54% higher than $11.1 million in revenues
for the first quarter of 2003. Net investment and payment agreement
revenue increased 73% from the comparable prior period primarily
due to improved interest spreads. Revenue from derivative products
was up 34% from prior year due primarily to two profitable
transactions during the quarter. Expenses Highlights * Financial
guarantee expenses of $44.1 million for the first quarter of 2004
increased by 38% over the $32.0 million of expenses for the same
quarter of 2003. This increase was primarily due to additions to
the loss provision and higher compensation expense. The loss
provision increased from $9.8 million in the first quarter of 2003,
to $17.5 million in the first quarter of 2004, reflecting the
impact of the recent credit cycle on our financial guarantee
portfolio. The loss provision for the fourth quarter of 2003 was
$16.8 million. The higher compensation expense is reflective of the
global opportunities as we continue to expand our resources to meet
demand for our product. * Financial services other expenses, which
represent the actual operating expenses for the segment, amounted
to $3.7 million for the first quarter of 2004, up 23% from $3.0
million for the first quarter of 2003. Other Items * Total net
securities gains/(losses) for the first quarter of 2004 were $9.7
million, or $0.05 per diluted share, consisting of net realized
gains on investment securities of $17.8 million, net mark-to-market
gains on credit derivatives of $6.9 million and net mark-to-market
losses on derivative economic hedge contracts of ($15.0) million.
The losses on derivative hedge contracts relate almost entirely to
mark-to-market on interest rate hedge contracts in Ambac's
medium-term note funding conduit. The results from the medium-term
note funding conduit are included in "Other (loss)/income" in the
Consolidated Statements of Operations. For the first quarter of
2003, net securities gains/(losses) were $2.8 million, or $0.02 per
diluted share, consisting of net realized gains on investment
securities of $14.3 million, net mark-to-market losses on credit
derivatives of ($12.2) million and net mark-to-market gains on
derivative hedge contracts of $0.7 million. * Interest expense for
the first quarter of 2004 was $13.6 million, up 9% from $12.5
million for the first quarter of 2003. The increase is primarily
attributable to the $200 million, 5.95% debt, due February 28,
2103, issued in February 2003. * Corporate expense for the first
quarter of 2004 was $2.2 million, compared to $8.3 million for the
first quarter of 2003. The first quarter 2003 expense includes a
$6.5 million write-off ($4.2 million after-tax) of previously
deferred issuance expenses related to the 1998 issuance of $200
million, 7.08% debentures, that were redeemed last year. Balance
Sheet Highlights * Total assets as of March 31, 2004 were $17.46
billion, up 4% from total assets of $16.75 billion at December 31,
2003. This increase was due primarily to cash generated from
business written during the period. As of March 31, 2004,
stockholders' equity was $4.53 billion, a 7% increase from year-end
2003 stockholders' equity of $4.25 billion. The increase stemmed
primarily from net income during the period. Annual Meeting of
Stockholders As previously announced, the Board of Directors set
the 2004 Annual Meeting of Stockholders for Tuesday, May 4, 2004,
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 was the close of business, March 9, 2004. 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; and (7) 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) Adjusted gross premiums
written, which is not promulgated under GAAP, is used by
management, equity analysts and investors to measure Ambac's
financial results. Adjusted gross premiums written, which Ambac
reports as analytical data, are defined as gross (direct and
assumed) up-front premiums written plus the present value of
estimated installment premiums written on insurance policies and
structured credit derivatives issued in the period. The definition
of adjusted gross premiums written used by Ambac may differ from
definitions of adjusted gross premiums written used by other public
holding companies of financial guarantors. The following table
reconciles adjusted gross premiums written to gross premiums
written calculated in accordance with GAAP: $-millions First
Quarter 2004 2003 Adjusted gross premiums written $ 258.8 $ 322.4
Present value of estimated installment premiums written on
insurance policies and structured credit derivatives issued in the
period (139.6) (220.8) Gross up-front premiums written $ 119.2 $
101.6 Gross installment premiums written on insurance policies
107.2 95.6 Gross premiums written $ 226.4 $ 197.2 Ambac Financial
Group, Inc. and Subsidiaries Consolidated Statements of Operations
(Unaudited) For the Three Months Ended March 31, 2004 and 2003
(Dollars in Thousands Except Share Data) Three Months Ended March
31, 2004 2003 Revenues: Financial Guarantee: Gross premiums written
$226,434 $197,219 Ceded premiums written (33,886) (31,168) Net
premiums written $192,548 $166,051 Net premiums earned $165,435
$134,752 Other credit enhancement fees 11,436 10,364 Net premiums
earned and other credit enhancement fees 176,871 145,116 Net
investment income 86,704 76,595 Net realized investment gains
11,871 13,943 Net mark-to-market gains (losses) on credit
derivative contracts 6,962 (12,176) Variable interest entity 1,061
-- Other (loss) income (12,219) 825 Financial Services: Interest
from investment and payment agreements 52,350 58,996 Other revenue
7,420 5,547 Net realized investment gains 5,951 308 Net
mark-to-market gains on derivative hedge contracts 63 677
Corporate: Net investment income 370 931 Net realized investment
losses (24) - Total revenues 337,380 290,762 Expenses: Financial
Guarantee: Losses and loss expenses 17,500 9,800 Underwriting and
operating expenses 25,654 22,166 Variable interest entity 904 -
Financial Services: Interest from investment and payment agreements
42,692 53,432 Other expenses 3,695 2,957 Interest 13,625 12,454
Corporate 2,189 8,273 Total expenses 106,259 109,082 Income before
income taxes 231,121 181,680 Provision for income taxes 59,366
43,618 Income from continuing operations 171,755 138,062
Discontinued operations: Loss from discontinued operations (240)
(231) Income tax benefit (96) (92) Net loss from discontinued
operations (144) (139) Net income $171,611 $137,923 Earnings per
share: Income from continuing operations $1.59 $1.30 Discontinued
operations $0.00 $0.00 Net income $1.59 $1.30 Earnings per diluted
share: Income from continuing operations $1.55 $1.27 Discontinued
operations $0.00 $0.00 Net income $1.55 $1.27 Weighted average
number of common shares outstanding: Basic 107,769,564 106,050,379
Diluted 110,397,003 108,737,211 Ambac Financial Group, Inc. and
Subsidiaries Consolidated Balance Sheets March 31, 2004 and
December 31, 2003 (Dollars in Thousands Except Share Data) March
31, 2004 December 31, 2003 (unaudited) Assets Investments: Fixed
income securities, at fair value (amortized cost of $12,671,020 in
2004 and $12,403,247 in 2003) $13,240,910 $12,860,068 Fixed income
securities pledged as collateral, at fair value (amortized cost of
$693,448 in 2004 and $662,046 in 2003) 696,089 661,422 Short-term
investments, at cost (approximates fair value) 226,451 250,382
Other, at fair value (cost of $4,543 in 2004 and $4,528 in 2003)
4,591 4,417 Total investments 14,168,041 13,776,289 Cash 20,046
24,449 Securities purchased under agreements to resell 147,000
54,015 Receivable for securities sold 17,823 4,425 Investment
income due and accrued 125,957 159,439 Reinsurance recoverable on
paid and unpaid losses 3,266 3,030 Prepaid reinsurance 328,254
325,461 Deferred acquisition costs 176,523 175,296 Loans 832,959
837,981 Derivative product assets 1,394,449 1,146,408 Variable
interest entity 170,663 189,482 Other assets 72,467 51,039 Total
assets $17,457,448 $16,747,314 Liabilities and Stockholders' Equity
Liabilities: Unearned premiums $2,576,080 $2,545,490 Losses and
loss expense reserve 230,810 189,414 Ceded reinsurance balances
payable 17,043 15,383 Obligations under investment and payment
agreements 6,612,176 6,545,759 Obligations under investment
repurchase agreements 474,951 530,644 Securities sold under
agreement to repurchase 163,200 225,500 Deferred income taxes
229,281 171,058 Current income taxes 52,769 43,176 Debentures
791,791 791,775 Accrued interest payable 47,012 73,941 Derivative
product liabilities 1,175,826 946,178 Other liabilities 227,659
222,126 Variable interest entity 170,663 189,482 Payable for
securities purchased 158,659 2,830 Total liabilities 12,927,920
12,492,756 Stockholders' equity: Preferred stock - - Common stock
1,084 1,073 Additional paid-in capital 646,989 606,468 Accumulated
other comprehensive income 353,500 266,919 Retained earnings
3,534,042 3,380,098 Common stock held in treasury at cost (6,087) -
Total stockholders' equity 4,529,528 4,254,558 Total liabilities
and stockholders' equity $17,457,448 $16,747,314 Number of shares
outstanding (net of treasury shares) 108,314,639 107,144,148 Book
value per share $41.82 $39.71 Ambac Financial Group, Inc. and
Subsidiaries Supplemental Analytical Data: Components of Adjusted
Book Value Per Share(1) March 31, 2004 and December 31, 2003 March
31, December 31, 2004 2003 Book value $41.82 $39.71 After-tax value
of: Net unearned premium reserve less deferred acquisition costs
12.43 12.41 Present value of future installment premiums 9.64 9.44
Unrealized loss on investment agreement liabilities (0.66) (0.29)
Adjusted book value $63.23 $61.27 (1) Adjusted book value (ABV),
which is not promulgated in accordance with accounting principles
generally accepted in the United States of America (GAAP), is used
by management, equity analysts and investors as a measurement of
the Company's intrinsic value with no benefit given for ongoing
business activity. Management derives ABV by beginning with
stockholders' equity (book value) and adding or subtracting the
after-tax value of: the net unearned premium reserve; deferred
acquisition costs; the present value of estimated net future
installment premiums; and the unrealized gain or loss on investment
agreement liabilities. These adjustments will not be realized until
future periods and may differ materially from the amounts used in
determining ABV. The definition of ABV used by the Company may
differ from definitions of ABV used by other public holding
companies of financial guarantee insurers. Ambac Assurance
Corporation Statutory Accounting, Financial and Capital Information
(1) March 31, 2004 and December 31, 2003 (Dollars in Thousands,
Except Ratios) March 31, December 31, 2004 2003 Capital and
Claim-Paying Resources: Contingency reserve $1,843,834 $1,786,316
Capital and surplus 2,876,953 2,739,675 Qualified statutory capital
4,720,787 4,525,991 Unearned premiums 2,688,920 2,649,273 Losses
and loss adjustment expenses 89,972 54,698 Policyholders' reserves
7,499,679 7,229,962 Third party capital support (2) 800,000 800,000
Present value of future installment premiums 1,605,473 1,555,611
Total claims paying resources $9,905,152 $9,585,573 Net financial
guarantees in force $629,468,095 $625,563,637 Capital ratio (3)
133:1 138:1 Financial resources ratio (4) 64:1 65:1 (1) Information
for Ambac Assurance Corporation, Connie Lee Insurance Company and
Ambac Assurance UK Limited are combined for purposes of this
schedule. (2) Third party capital support represents pre-funded
capital which provides for the unconditional ability to issue up to
$800 million of preferred stock to high quality asset-backed
investment vehicles. (3) Capital ratio is net financial guarantees
in force divided by qualified statutory capital. (4) Financial
resources ratio is net financial guarantees in force divided by
total claims paying resources. Ambac Assurance Corporation and
Subsidiaries Capitalization Table - GAAP March 31, 2004 and
December 31, 2003 (Dollars in Millions) The following table sets
forth Ambac Assurance's consolidated capitalization as of March 31,
2004 and December 31, 2003, respectively, on the basis of
accounting principles generally accepted in the United States of
America. March 31, December 31, 2004 2003 (unaudited) Unearned
premiums $2,583 $2,553 Notes payable to affiliate 165 84 Other
liabilities 2,659 2,197 Total liabilities 5,407 4,834 Stockholder's
equity: Common stock 82 82 Additional paid-in capital 1,156 1,144
Accumulated other comprehensive income 285 243 Retained earnings
3,589 3,430 Total stockholder's equity 5,112 4,899 Total
liabilities and stockholder's equity $10,519 $9,733 DATASOURCE:
Ambac Financial Group, Inc. CONTACT: Peter R. Poillon of Ambac
Financial Group, Inc., +1-212-208-3333, or Web site:
http://www.ambac.com/
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