Assured Guaranty Municipal 8-K Results of Operations and Financial Condition

Exhibit 99.1

CONTACTS:	PRESS RELATIONS
	BETSY CASTENIR
	(212) 339-3424
FOR IMMEDIATE RELEASE
	INVESTOR RELATIONS
	ROBERT TUCKER
	(212) 339-0861

FSA HOLDINGS THIRD QUARTER 2004 RESULTS

NET INCOME

$92 Million in Q3 04 (+39% vs. Q3 03)

$259 Million in 9M 04 (+30% vs. 9M 03)

ORIGINATIONS (PRESENT VALUE)

$253 Million in Q3 04 (-3% vs. Q3 03)

$710 Million in 9M 04 (+3% vs. 9M 03)

New York, New York, November 4, 2004 — Financial Security Assurance Holdings Ltd. (the Company), the holding company for bond insurer Financial Security Assurance Inc. (FSA), announced third quarter 2004 net income of $91.8 million, 39.0% higher than in the prior year.

NET INCOME AND RECONCILIATION TO NON-GAAP OPERATING EARNINGS

(Dollars in millions)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
Net Income	$	91.8	$	66.1	$	259.1	$	200.0
Less fair-value adjustments for insured credit default swaps, net of taxes [1]	13.1		3.1		26.7		5.9
Operating Earnings [1]	$	78.7	$	63.0	$	232.4	$	194.1

[1]For definitions, see below, “Analysis of Financial Results – Operating Earnings.”   Also see “Non-GAAP Terms,” below, for a discussion of measures not promulgated in accordance with accounting principles generally accepted in the United States of America (GAAP).

The Company increased operating earnings 24.8% for the third quarter and 19.7% for nine months, compared with results in the same periods last year.  See “Analysis of Financial Results,” below, for further discussion of earnings results.

Shareholders’ equity (book value) was $2.4 billion and non-GAAP adjusted book value (ABV) was $3.5 billion at September 30, 2004.  Over the past 12 months, ABV grew 16.7% excluding realized and unrealized capital gains and losses in the investment portfolio and 16.3% including such gains and losses.    The Company’s management considers ABV to be a reasonable proxy for the intrinsic value of

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the Company, exclusive of franchise value, because it captures deferred income from business already generated.  In the third quarter of 2004, the Company amended the definition of ABV to exclude fair-value adjustments for insured credit default swaps (CDS).  See “Non-GAAP Terms,” below, for more discussion of ABV and a reconciliation to book value.

Third-quarter present value (PV) originations were $252.7 million, 2.5% lower than in that period last year.  Year-to-date, however, PV originations reached $709.9 million, 2.6% higher than in the first nine months of 2003.

Robert P. Cochran, chairman and chief executive officer of the Company and FSA, said: “Business production for the first nine months was very solid, surpassing last year’s results for the same period and producing a strong earnings profile.

“While the U.S. municipal market has maintained considerable strength, our U.S. municipal originations decreased significantly in the third quarter as we maintained underwriting and pricing discipline in the face of declining new-issue volume and intensifying competition.

“Conversely, FSA’s U.S. asset-backed business made a very strong showing, as we found opportunities across a range of high-quality transactions.  We also had a steady contribution from our international business, although we have reduced our full-year expectations because a number of significant public infrastructure transactions have been delayed.  These results once again underscore the value of a diversified business approach across three distinct markets,” he added.

BUSINESS PRODUCTION

TOTAL NEW ORIGINATIONS

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
Gross par insured (dollars in billions)	$	44.6	$	27.5	$	86.7	$	64.2
PV originations (dollars in millions) [1]	252.7		259.3		709.9		692.0

[1]The sum of (a) the present value of gross premiums originated (PV premiums), defined as estimated future installment premiums, measured as of the policy effectiveness date, discounted to their present value plus upfront premiums, and (b) the present value of estimated future net interest margin (PVNIM) generated in the financial products segment. The discount rate, calculated based on the trailing three-year average pre-tax yield on the investment portfolio, was 5.62% in 2004 and 5.91% in 2003 for all originations. PV premiums, PVNIM and PV originations are non-GAAP measures. For further discussion and a reconciliation of total PV originations to gross premiums written, see below, “Analysis of Financial Results – Premiums.”

Unless otherwise noted, percentage changes mentioned in this release compare the period named with the comparable period of the prior year.

U.S. MUNICIPAL NEW ORIGINATIONS

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
Gross par insured (dollars in billions)	$	13.1	$	17.5	$	36.6	$	44.2
PV premiums (dollars in millions)	97.5		160.0		322.9		368.6

Year-to-date, new-issue volume in the U.S. municipal bond market reached $267.4 billion, an 8.2% decline.  Insurance penetration was approximately 55%, compared with 52% for nine months of last

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year.  In this environment, FSA insured approximately 24% of the par amount of insured new issues sold year-to-date.

Including both primary and secondary U.S. municipal obligations with closing dates in the third quarter, the par amount insured by FSA decreased 25.5%, and PV premiums decreased 39.1%.  New-issue market volume declined, and insurance pricing was highly competitive.  In this environment, FSA adhered to its underwriting and pricing discipline.  For the first nine months, FSA’s U.S. municipal par originated declined 17.1%, and PV premiums declined 12.4%.

U.S. ASSET-BACKED NEW ORIGINATIONS

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
Gross par insured (dollars in billions)	$	28.3	$	5.3	$	41.6	$	11.8
PV premiums (dollars in millions)	100.6		51.1		185.4		138.2

The Company insured more than five times as much U.S. asset-backed par in the third quarter of 2004 than in that of 2003, with the strongest activity in the pooled corporate and residential mortgage sectors. The associated PV premiums, which increased 96.9%, did not grow as much as par insured because all of the growth in par volume came from transactions of Triple-A underlying credit quality.  Such high-quality transactions tend to have relatively low premium rates but tend to achieve good returns on equity.   This business was also the main driver of U.S. asset-backed growth for the nine-month period, in which par insured more than tripled and PV premiums increased 34.2%.

INTERNATIONAL NEW ORIGINATIONS

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
Gross par insured (dollars in billions)	$	3.2	$	4.7	$	8.5	$	8.2
PV premiums (dollars in millions)	34.7		35.1		149.0		153.8

FSA’s international business was driven primarily by pooled corporate and public infrastructure transactions during the third quarter.  International par insured decreased 32.1% for the quarter, and the related PV premiums were relatively flat. The decline in par volume came primarily in the residential mortgage sector, where two large, Triple-A synthetic transactions with relatively low premium rates were executed in the third quarter of 2003.  For the first nine months, international par insured increased 3.5%, and international PV premiums decreased 3.1%.

FINANCIAL PRODUCTS NEW ORIGINATIONS

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
Gross PVNIM (dollars in millions)	$	19.9	$	13.1	$	52.6	$	31.4

PVNIM generated in the financial products segment rose 51.9% for the third quarter and 67.5% for the nine-month period.  The third-quarter growth reflects increased activity in both municipal and structured guaranteed investment contracts (GICs). As previously disclosed, GIC activity in the first half of 2003 was constrained until the Company received an exemption from the Investment Company Act of 1940 in April of that year.

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ANALYSIS OF FINANCIAL RESULTS

NET INCOME. Third-quarter net income rose 39.0% to $91.8 million from $66.1 million in the third quarter of 2003.  The following table provides the after-tax amounts of certain income and expense items that management believes are useful in analyzing net income:

NOTEWORTHY ITEMS INCLUDED IN NET INCOME

(All items shown net of taxes. Dollars in millions)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
Refundings, calls or other accelerations [1]	$	5.2		$	5.2		$	17.8		$	11.2
Realized gains (losses), net	0.8			0.1			(0.8		)	3.0
Equity-based compensation [2]	(8.7		)	(4.9		)	(23.0		)	(18.1		)
Equity in earnings and impairment of goodwill of SPS [3]	(7.5		)	(11.0		)	(7.2		)	(9.3		)
Equity in earnings of XLFA [4]	(10.0		)	5.1			3.2			11.6
Fair-value adjustments for insured CDS [5]	13.1			3.1			26.7			5.9

[1]Net of deferred acquisition cost amortization.

[2]The Company has always included in net income the currently vested future-value payout cost of its performance share program, which is the Company’s only equity-based compensation program.

[3]SPS Holding Corp. (SPS) is a mortgage servicing holding company in which the Company owns a minority interest. At September 30, 2004, the Company’s interest in SPS had a book value of $49.6 million. In the third quarter of 2004, the Company recorded in equity in earnings an impairment of $7.6 million of unamortized goodwill related to SPS because of challenges encountered by SPS in acquiring new business, despite a servicer rating of “average.” SPS was named Fairbanks Capital Holding Corp. until June 30, 2004.

[4]XL Financial Assurance Ltd (XLFA) is a financial guaranty insurance company in which the Company owns a minority interest. XLFA reinsures business originated by FSA and other financial guarantors. The Company recently refined the method for estimating the carrying amount of this investment. As a result, the Company charged equity in earnings $11.7 million in the third quarter and reduced its carrying value in this investment from $68.1 million to $56.4 million as of September 30, 2004.

[5]This item is excluded from operating earnings.

OPERATING EARNINGS.  The Company defines operating earnings (a non-GAAP measure) as net income before the effects of fair-value adjustments for FSA-insured CDS that have investment-grade underlying credit quality and must be marked to fair value under Statement of Financial Accounting Standards No. 133 (SFAS No. 133).  Because CDS contracts are generally non-cancelable prior to maturity, the Company views insured CDS risks as comparable to other insured risks.   Because the SFAS No. 133 adjustments for each guaranteed CDS are expected to sum to zero over the life of the transaction, the Company considers operating earnings a key measure of normal operating results.

Third-quarter operating earnings of $78.7 million were lower than net income because they exclude positive fair-value adjustments totaling $19.4 million ($13.1 million after taxes).  The fair-value adjustments primarily reflect tightening of market credit spreads.  The comparable fair-value adjustments in the third quarter of 2003 were gains totaling $4.5 million ($3.1 million after taxes).

Nine-month operating earnings of $232.4 million were lower than net income because they exclude positive fair-value adjustments totaling $39.4 million ($26.7 million after taxes).  The comparable fair-value adjustments in the first nine months of 2003 were gains totaling $8.6 million ($5.9 million after taxes).

PREMIUMS. The following tables reconcile gross premiums written to PV originations and summarize net earned and written premiums.  PV premiums, PVNIM and PV originations are non-GAAP measures

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that the Company employs as indicators of a given period’s origination activity because a substantial portion of the Company’s premium and net interest margin revenue is collected in installments. In contrast, gross premiums written captures premiums collected in the period, whether collected for business originated in the period or in installments for business originated in prior periods.

RECONCILIATION OF GROSS PREMIUMS WRITTEN TO PV ORIGINATIONS

(Dollars in millions)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
Gross premiums written	$	198.2		$	262.1		$	623.8		$	686.5
Gross installment premiums received	(83.0		)	(82.4		)	(253.4		)	(252.6		)
Gross upfront premiums originated	115.2			179.7			370.4			433.9
PV estimated installment premiums originated	117.6			66.5			286.9			226.7
PVNIM originated	19.9			13.1			52.6			31.4
PV originations	$	252.7		$	259.3		$	709.9		$	692.0

NET EARNED AND WRITTEN PREMIUMS

(Dollars in millions)

	Three Months Ended September 30,				Nine Months Ended September 30,
	2004		2003		2004		2003
Premiums written, net of reinsurance	$	148.8	$	182.9	$	431.9	$	463.0
Premiums earned, net of reinsurance	100.6		95.5		294.5		263.7
Net premiums earned excluding effect of refundings and prepayments	90.6		84.8		262.2		241.1

Third-quarter gross premiums written of $198.2 million and net premiums written of $148.8 million represent decreases of 24.4% and 18.6%, respectively.  The declines reflect reductions in upfront premiums originated in the international and U.S. municipal sectors.  Third-quarter net premiums written include $10.6 million of previously ceded business, which FSA had the right to reassume because the reinsurer had been downgraded.  For the first nine months, gross premiums written of $623.8 million and net premiums written of $431.9 million represent decreases of 9.1% and 6.7%, respectively.

For the third quarter, net premiums earned totaled $100.6 million, a 5.4% increase.  This includes $10.0 million of net premiums earned from refundings and prepayments, which were $10.7 million in the third quarter of 2003.  Excluding premiums from refundings and prepayments, third-quarter net premiums earned increased 6.9%.

For the first nine months, net premiums earned totaled $294.5 million, an 11.7% increase.  This includes $32.3 million of net premiums earned from refundings and prepayments, compared with $22.6 million in the same period last year.  Excluding premiums from refundings and prepayments, nine-month net premiums earned increased 8.8%.

NET INTEREST MARGIN.  Third-quarter net interest margin for the financial products segment was $7.6 million in 2004, compared with a $0.5 million loss a year ago.  Nine-month net interest margin increased to $16.5 million in 2004 from $2.9 million in nine months of 2003.  The increases in net interest margin are primarily due to a larger book of GIC business and adverse SFAS No. 133 adjustments in 2003.  Prior-year balances have been reclassified to conform to the 2004 presentation.

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INVESTMENT PORTFOLIO. Third-quarter net investment income was $43.7 million, an increase of 11.4%.  The increase primarily reflects higher invested balances.  Third-quarter net realized gains were $1.2 million, compared with $0.2 million a year ago.  The Company’s effective tax rate on investment income (excluding the effects of realized gains and losses and variable interest entities) for the third quarter was 9.4%, versus 9.7% for last year’s third quarter.

Nine-month net investment income was $126.3 million, compared with $113.5 million a year ago.  Nine-month net realized losses were $1.3 million in 2004, compared with net realized gains of $4.0 million in nine months of 2003.

EXPENSES AND RESERVES. For the third quarter, policy acquisition and other operating expenses increased to $31.4 million, $3.2 million higher than in last year’s third quarter.  The Company also recorded a net recovery of losses and loss adjustment expenses totaling $4.3 million ($2.4 million after taxes).  FSA exercised its rights to have the collateral of a defaulted collateralized bond obligation liquidated at a public sale, in which the Company offered the highest bid and acquired the collateral in order to gain control of the portfolio in order to mitigate potential losses.  The previously established case reserve was drawn down to reflect the excess of the purchase amount over the fair value of the collateral.  The $9.5 million balance of the case reserve was returned to the general reserve.  After reevaluating its requirements for the collateralized debt obligation (CDO) portion of the general reserve, the Company then reduced the general reserve by $9.5 million, which was partially offset by normal additions to reserves.  Adjustments to reserves represent management’s estimate of the amount required to cover the present value of the net cost of claims, based on statistical provisions for new originations and a separate review of the insured CDO portfolio.

During the third quarter, a net amount of $1.4 million was transferred from case reserves to the general reserve, primarily reflecting the transfer described above, partially offset by a transfer to case reserves for a municipal utility transaction.  The CDO portfolio continues to perform within the expectations reflected in previously recorded provisions for CDOs. �� Transfers between general and case reserves represent a reallocation of existing loss reserves and have no impact on earnings.  At September 30, 2004, case and general reserves in aggregate totaled $133.2 million, compared with $174.2 million at December 31, 2003.  As previously disclosed, the primary reason for the net reduction in reserves was that FSA exercised its right to have a large CDO transaction redeemed in full during the second quarter of 2004.

NON-GAAP TERMS

Management and investors consider the measures identified in this release as non-GAAP measures to be important in analyzing the financial results of the Company.  However, none of these measures are promulgated in accordance with accounting principles generally accepted in the United States of America and should not be considered as substitutes for such GAAP measures as shareholders’ equity, net income, revenues, expenses and gross premiums written.

Non-GAAP measures used in this release are ABV, operating earnings and PV originations (including its components PV premiums and PVNIM).  Operating earnings and PV originations are reconciled above to net income and gross premiums written, respectively, and ABV is reconciled to book value in the table below.  ABV consists of book value plus the estimated present value of future income from business the Company has already originated, less fair-value adjustments for insured CDS.  The estimated present value of future income is substantial because premiums are earned over the life of each insured transaction. The Company uses ABV and operating earnings to calculate a portion of compensation paid to its employees. 

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RECONCILIATION OF SHAREHOLDERS’ EQUITY TO NON-GAAP ADJUSTED BOOK VALUE

(Dollars in millions)

	September 30, 2004			December 31, 2003
Shareholders’ Equity (Book Value) [1]	$	2,431.9		$	2,168.4
After-tax value of:
Net deferred premium revenue less deferred acquisition cost and goodwill	641.3			572.8
Present value of future net installment premiums and present value of future net interest margin [2]	485.2			424.1
Less fair-value adjustments for insured CDS	(19.3		)	6.5
Adjusted Book Value [3]	$	3,539.1		$	3,171.8

[1]Includes the effect of after-tax unrealized gains in the investment portfolio, which was $157.7 million at September 30, 2004 and $147.4 million at December 31, 2003.

[2]The discount rate varies according to the year of origination. For each year’s originations, the Company calculates the discount rate as the average pre-tax yield on its investment portfolio for the previous three years. The rate was 5.62% in 2004 and 5.91% in 2003.

[3]The Company began to exclude fair-value adjustments for insured CDS from ABV in the third quarter of 2004. ABV for December 31, 2003 is restated accordingly.

This release also contains certain other non-GAAP measures that are based on statutory accounting principles applicable to insurance companies.  Management uses such measures because the measures are required by regulators and used by rating agencies to assess the capital adequacy of the Company.  The following table presents statutory information for FSA.

CLAIMS-PAYING RESOURCES (STATUTORY BASIS)

FINANCIAL SECURITY ASSURANCE INC. AND SUBSIDIARIES

(Dollars in thousands)

	September 30, 2004		December 31, 2003
Contingency Reserve	$	1,185,565	$	936,761
Capital and Surplus	1,070,368		1,167,496
Qualified Statutory Capital	2,255,933		2,104,257
Net Unearned Premium Reserve	1,561,771		1,356,385
Loss and Loss Adjustment Expenses	40,676		64,936
Policyholder Capital and Reserves	3,858,380		3,525,578
Net Present Value of Installment Premiums	705,866		607,092
Third-Party Capital Support	525,000		525,000
Total Claims-Paying Resources	$	5,089,246	$	4,657,670
Net Insurance in Force (principal & interest)	$	459,422,216	$	409,476,253
Capital Ratio [1]	204:1		195:1
Claims-Paying Ratio [2]	90:1		88:1

[1]Capital ratio is net insurance in force divided by qualified statutory capital.

[2]Claims-paying ratio is net insurance in force divided by claims-paying resources.

ADDITIONAL INFORMATION

The Company will post its current Operating Supplement to its website, www.fsa.com, today.  The Operating Supplement contains additional information about results for the period covered in this

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release.  On the Investor Presentations page of its website, the Company will also post updated information about its insured securitization program with AmeriCredit Corp.

FORWARD-LOOKING STATEMENTS

The Company relies on the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995.  This safe harbor requires that the Company specify important factors that could cause actual results to differ materially from those contained in forward-looking statements made by or on behalf of the Company. Accordingly, forward-looking statements by the Company and its affiliates are qualified by reference to the following cautionary statements.

In its filings with the SEC, reports to shareholders, press releases and other written and oral communications, the Company from time to time makes forward-looking statements. Such forward-looking statements include, but are not limited to, (i) projections of revenues, income (or loss), earnings (or loss) per share, dividends, market share or other financial forecasts; (ii) statements of plans, objectives or goals of the Company or its management, including those related to growth in adjusted book value per share or return on equity; and (iii) expected losses on, and adequacy of loss reserves for, insured transactions. Words such as “believes,” “anticipates,” “expects,” “intends” and “plans” and similar expressions are intended to identify forward-looking statements but are not the exclusive means of identifying such statements.

The Company cautions that a number of important factors could cause actual results to differ materially from the plans, objectives, expectations, estimates and intentions expressed in forward-looking statements made by the Company. These factors include: (i) changes in capital requirements or other criteria of securities rating agencies applicable to financial guaranty insurers in general or to FSA specifically; (ii) competitive forces, including the conduct of other financial guaranty insurers in general; (iii) changes in domestic or foreign laws or regulations applicable to the Company, its competitors or its clients; (iv) changes in accounting principles or practices that may result in a decline in securitization transactions; (v) an economic downturn or other economic conditions (such as a rising interest-rate environment) adversely affecting transactions insured by FSA or its investment portfolio; (vi) inadequacy of reserves established by the Company for losses and loss adjustment expenses; (vii) temporary or permanent disruptions in cash flow on FSA-insured structured transactions attributable to legal challenges to such structures; (viii) downgrade or default of one or more of FSA’s reinsurers; (ix) the amount and nature of business opportunities that may be presented to the Company; (x) market conditions, including the credit quality and market pricing of securities issued; (xi) capacity limitations that may impair investor appetite for FSA-insured obligations; (xii) market spreads and pricing on insured credit default swap exposures, which may result in gain or loss due to mark-to-market accounting requirements; (xiii) prepayment speeds on FSA-insured asset-backed securities and other factors that may influence the amount of installment premiums paid to FSA; (xiv) changes in the value or performance of strategic investments made by the Company; and (xv) other factors, most of which are beyond the Company’s control. The Company cautions that the foregoing list of important factors is not exhaustive. In any event, such forward-looking statements made by the Company speak only as of the date on which they are made, and the Company does not undertake any obligation to update or revise such statements as a result of new information, future events or otherwise.

THE COMPANY

Financial Security Assurance Holdings Ltd. (FSA Holdings) is a New York-headquartered holding company whose subsidiaries provide financial guarantees in both the public and private sectors around the world.  Its principal operating subsidiary, Financial Security Assurance Inc. (FSA), is a leading

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guarantor of municipal bonds, infrastructure financings and asset-backed securities.  FSA has earned Triple-A ratings, the highest ratings available, from Fitch Ratings, Moody’s Investors Service, Inc., Standard & Poor’s Ratings Services and Rating and Investment Information, Inc.  FSA Holdings is a member of the Dexia group.  For additional information, visit www.fsa.com.

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FINANCIAL SECURITY ASSURANCE HOLDINGS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share data)

	September 30, 2004			December 31, 2003
ASSETS
Bonds at fair value (amortized cost of $3,796,212 and $3,275,310)	$	4,036,905		$	3,508,649
Equity securities at fair value (cost of $13,919)	13,051
Short-term investments	228,472			224,429
Variable interest entities’ bonds at fair value (amortized cost of $1,353,682 and $1,423,657)	1,353,960			1,422,538
Variable interest entities’ short-term investment portfolio	22,126			11,102
Financial products bond portfolio at fair value (amortized cost of $6,105,082 and $4,033,979)	6,103,857			4,031,263
Financial products bond portfolio pledged as collateral at fair value (amortized cost of $18,476 and $70,358)	18,331			66,423
Financial products short-term investment portfolio	1,005,696			228,812
Total investment portfolio	12,782,398			9,493,216
Cash	20,463			19,460
Securitized loans	388,806			440,611
Deferred acquisition costs	300,359			273,646
Prepaid reinsurance premiums	735,595			695,398
Investment in unconsolidated affiliates	105,969			110,863
Reinsurance recoverable on unpaid losses	46,845			59,235
Other assets	1,244,211			1,282,241
TOTAL ASSETS	$	15,624,646		$	12,374,670
LIABILITIES AND MINORITY INTEREST AND SHAREHOLDERS’ EQUITY
Deferred premium revenue	$	2,022,581		$	1,861,960
Losses and loss adjustment expenses	180,030			233,408
Guaranteed investment contracts and variable interest entities’ debt	9,327,191			6,809,771
Deferred federal income taxes	204,087			152,646
Notes payable	430,000			430,000
Accrued expenses and other liabilities	1,028,853			718,449
TOTAL LIABILITIES AND MINORITY INTEREST	13,192,742			10,206,234
Common stock (200,000,000 shares authorized; 33,517,995 issued; par value of $.01 per share)	$	335		$	335
Additional paid-in capital	899,311			900,224
Accumulated other comprehensive income (net of deferred income taxes of $80,817 and $76,041)	157,702			147,433
Accumulated earnings	1,374,556			1,120,444
Deferred equity compensation	23,528			23,445
Less treasury stock at cost (297,276 and 297,658 shares held)	(23,528		)	(23,445		)
TOTAL SHAREHOLDERS’ EQUITY	2,431,904			2,168,436
TOTAL LIABILITIES AND MINORITY INTEREST AND SHAREHOLDERS’ EQUITY	$	15,624,646		$	12,374,670

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FINANCIAL SECURITY ASSURANCE HOLDINGS LTD. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(in thousands)

	Three Months Ended September 30,						Nine Months Ended September 30,
	2004			2003			2004			2003
Revenues:
Net premiums written	$	148,831		$	182,946		$	431,906		$	463,015
Net premiums earned	100,585			95,460			294,514			263,708
Net investment income	43,684			39,218			126,315			113,527
Net realized gains (losses)	1,158			151			(1,262		)	4,044
Net interest income from financial products segment and variable interest entities	44,126			17,041			102,120			36,947
Financial products net realized gains (losses)	2,099						2,217			(1,096		)
Net realized and unrealized gains on derivative instruments	17,853			8,259			40,382			10,399
Other income	2,488			290			6,081			1,917
TOTAL REVENUES	211,993			160,419			570,367			429,446
Expenses:
Losses and loss adjustment (benefit) expenses	(4,263		)	14,638			11,103			27,533
Interest expense	6,748			11,750			20,245			25,921
Policy acquisition costs	15,989			16,349			44,608			43,285
Net interest expense from financial products segment and variable interest entities	35,446			15,060			88,309			29,289
Other operating expenses	15,411			11,872			51,034			44,811
TOTAL EXPENSES	69,331			69,669			215,299			170,839
Minority interest	2,871			(3,025		)	(7,017		)	(7,745		)
Equity in earnings of unconsolidated affiliates	(19,133		)	(5,874		)	(3,415		)	3,512
INCOME BEFORE INCOME TAXES AND CUMULATIVE EFFECT OF ACCOUNTING CHANGE	126,400			81,851			344,636			254,374
Provision for income taxes	(34,565		)	(20,570		)	(85,550		)	(59,179		)
INCOME BEFORE CUMULATIVE EFFECT OF ACCOUNTING CHANGE	91,835			61,281			259,086			195,195
Cumulative effect of accounting change, net of income taxes of $2,598				4,800						4,800
NET INCOME	91,835			66,081			259,086			199,995
Other comprehensive income (loss), net of tax:
Unrealized gains (losses) on securities:
Holding gains (losses) arising during period	67,209			(27,218		)	11,377			14,180
Less: reclassification adjustment for gains included in net income	2,537			229			1,108			2,707
Other comprehensive income (loss)	64,672			(27,447		)	10,269			11,473
COMPREHENSIVE INCOME	$	156,507		$	38,634		$	269,355		$	211,468

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