Ambac Financial Group, Inc.
One State Street Plaza
New York, NY 10004
212.668.0340
News Release
For Immediate Release
Investor/Media Contact: Brian S. Moore
(212) 208-3333
bmoore@ambac.com
Web site: www.ambac.com
[LOGO] Ambac
AMBAC FINANCIAL GROUP, INC. ANNOUNCES
SECOND QUARTER NET INCOME OF $107.6 MILLION, UP 16%
Second Quarter Operating Earnings Per Diluted Share/(1)/ up 9%,
Core Earnings Per Diluted Share/(1)/ Up 9%
Second Quarter Adjusted Gross Premiums Written/(2)/ Increase 44%
NEW YORK, July 18, 2001--Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today
announced second quarter 2001 net income of $107.6 million or $0.99 per diluted
share. This represents a 16% increase from second quarter 2000 net income of
$92.6 million and a 14% increase in net income per diluted share from $0.87 in
the second quarter 2000.
Commenting on the results, Ambac Chairman and CEO Phillip B. Lassiter noted, "It
was an exceptional quarter in terms of business generated, as evidenced by the
new high water mark established for premiums written. We are seeing excellent
demand for our services across all of our sectors with domestic public finance
enjoying the strongest business flow in quite some time. The overall outlook
remains very positive."
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Ambac Second Quarter 2001 Earnings/2
Earnings Per Diluted Share
- --------------------------
In addition to net income, Ambac presents operating earnings and core earnings,
as discussed in Footnote 1. These measures, though not substitutes for net
income, are useful for analysis in that they eliminate certain items, such as
realized gains and losses, the effect of refundings and calls and certain non-
recurring items, to highlight the more consistent elements of earnings.
For the second quarter of 2001, operating earnings were $107.2 million, up 11%
from the $96.6 million in operating earnings for the second quarter of 2000.
Core earnings for the second quarter of 2001 were $101.2 million, an increase of
12% from $90.7 million in core earnings for the second quarter of 2000.
The following table shows net income, operating earnings and core earnings, all
per diluted share:
Table I
Second Quarter Six Months
% %
2001 2000 Change 2001 2000 Change
----- ---- ------ ---- ---- ------
Net income per diluted share $0.99 $0.87 +14% $1.88 $1.67 +13%
Operating earnings per diluted share $0.98 $0.90 +9% $1.90 $1.71 +11%
Core earnings per diluted share $0.93 $0.85 +9% $1.81 $1.63 +11%
Revenues
- --------
Total revenues in the second quarter of 2001 were $179.5 million, an increase of
14% from $157.5 million in revenues for the second quarter of 2000.
Highlights
. Adjusted gross premiums written(2) in the second quarter of 2001 were $307.8
million, up 44% from $214.2 million in the second quarter of 2000. This was a
record quarter for adjusted gross premiums written. A substantial increase in
municipal and structured finance adjusted gross premiums written was
partially offset by a decline in international finance adjusted gross
premiums written.
On the municipal side, Ambac benefited from increased municipal volume
resulting from the lower interest rate environment. Included in the overall
mix of insured municipal issues were several large transportation deals and
several high-quality health care issues. The structured business was again
dominated by consumer asset-backed transactions, including mortgage-
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Ambac Second Quarter 2001 Earnings/3
backed deals and auto rental securitizations. Though international premiums
written declined, the comparison in part reflects the fact that the second
quarter 2000 included an unusually large securitization issue in the UK.
International premiums in the second quarter 2001 included a number of
utilities and a PFI (Private Finance Initiative) transaction in the UK.
A breakdown of adjusted gross premiums written by market sector is included
below as Table II.
Table II
Adjusted Gross Premiums Written *
$-millions Second Quarter Six Months
% %
2001 2000 Change 2001 2000 Change
---- ---- ------ ---- ---- ------
Municipal Finance $145.1 $ 39.2 +270% $193.4 $ 69.3 +179%
Structured Finance 79.5 65.9 +21% 133.3 122.7 +9%
International 83.2 109.1 -24% 138.8 142.7 -3%
------ ------ ------ ------
Total $307.8 $214.2 +44% $465.5 $334.7 +39%
* The definition of adjusted gross premiums has been revised and the prior
period has been restated. See Note 2.
. Net premiums written in the second quarter of 2001 of $212.9 million were
123% higher than net premiums written of $95.4 million in the same period of
2000. The large increase resulted not only from business written during the
quarter but also from the build-up of installment premium collection.
Installment premiums grew by 29% from $46.2 million in the second quarter
2000 to $59.8 million in the second quarter 2001. Gross premiums written for
the second quarter of 2001 were offset by $23.8 million in ceded premiums. In
the second quarter of 2000, ceded premiums were $26.2 million.
Net premiums written for the six months of 2001 of $309.9 million were 109%
higher than net premiums written of $148.6 million in the same period of
2000.
. Net premiums earned for the second quarter of 2001 were $93.4 million, which
represented a 15% increase from the $80.9 million earned in the second
quarter of 2000. Net premiums earned increased for all market segments,
though increases were most pronounced in the international and structured
finance businesses. As these businesses have developed, they have become a
more significant component of total premiums earned. As base amounts of
premiums earned have risen, relative growth rates have slowed.
Net premiums earned include accelerated premiums, which result from
refundings and calls recognized during the quarter. Accelerated premiums were
$10.6 million in the second quarter of 2001 (which had a net income per
diluted share effect of $0.06), up 3% from $10.4
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Ambac Second Quarter 2001 Earnings /4
million (also $0.06 per diluted share) in accelerated premiums in the second
quarter of 2000. Though the relative increase in accelerated premiums appears
small, the second quarter 2001 figure actually reflects the overall increase
in municipal refunding volume during the quarter. Of the $10.4 million in
accelerated premiums recognized in the second quarter 2000, $7.5 million
resulted from a review of the insured book of business that targeted issues
that had been refunded in prior years.
Net premiums earned for the six months of 2001 were $178.5 million, which
represented a 17% increase from the $152.1 million earned in the first half
of 2000. Accelerated premiums were $16.7 million for the first six months of
2001 (which had a net income per diluted share effect of $0.09), up 11% from
$15.0 million ($0.08 per diluted share) in accelerated premiums for the first
six months of 2000.
A breakdown of normal net premiums earned by market sector is included below as
Table III. Normal net premiums earned exclude accelerated premiums that result
from refundings and calls.
Table III
Normal Net Premiums Earned
$-millions Second Quarter Six Months
% %
2001 2000 Change 2001 2000 Change
---- ---- ------- ---- ----- ------
Municipal Finance $36.5 $33.8 +8% $ 72.0 $ 67.6 +7%
Structured Finance 32.0 25.6 +25% 62.0 48.6 +28%
International 14.3 11.2 +28% 27.8 20.9 +33%
----- ----- ------ ------
Total $82.8 $70.6 +17% $161.8 $137.1 +18%
. Net fees and other premiums earned which includes revenues from structured
credit derivative transactions, were $8.0 million in the second quarter 2001,
up 248% from the $2.3 million for the second quarter of 2000. Income related
to structured credit derivatives was positively impacted by a $0.7 million
mark-to-market gain in the second quarter 2001. Income related to structured
credit derivatives was adversely impacted by a mark-to-market loss of $1.3
million in the second quarter 2000.
Net fees and other premiums earned were $13.1 million in the first half of
2001, up 162% from the $5.0 million in the first half of 2000.
. Net investment income for the second quarter of 2001 was $65.1 million,
representing an increase of 11% from $58.9 million in the comparable period
of 2000. This increase was due
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Ambac Second Quarter 2001 Earnings /5
primarily to the growth in the investment portfolio from ongoing operations,
partially offset by a lower reinvestment rate due to the current interest
rate environment.
Net investment income for the first six months of 2001 was $129.5 million,
representing an increase of 11% from $116.5 million in the comparable period
of 2000.
. Financial services revenues, excluding realized gains and losses, were $11.8
million in the second quarter of 2001, down 44% from the $21.1 million in
revenues for the second quarter of 2000. The sharp decline stemmed mainly
from the fact that the second quarter of 2000 was an unusually strong quarter
for the swap business, with several municipal interest rate swap transactions
closed during that period. In addition, investment agreement revenue has
declined due to lower volume and interest rate spreads.
Financial services revenues, excluding realized gains and losses, were $26.2
million in the first half of 2001, down 26% from the $35.6 million in
revenues for the first half of 2000.
Expenses
- --------
Highlights
. Financial guarantee expenses of $22.2 million for the second quarter of 2001
increased by 27% over the $17.5 million of expenses for the same quarter of
2000. This increase was due to higher compensation costs and increased loss
and loss adjustment expenses.
Financial guarantee expenses of $43.5 million for the first six months of
2001 increased by 27% over the $34.2 million of expenses for the same period
of 2000.
. Financial services expenses for the second quarter of 2001 of $6.0 million
declined by 5% from $6.3 million in expenses for the second quarter of 2000.
Financial services expenses for the first half of 2001 of $11.6 million
decreased by 9% from $12.8 million in expenses for the first half of 2000.
Other Items
- -----------
. Total net realized gains for the second quarter of 2001 were $0.7 million.
For the second quarter of 2000 net realized losses were $6.2 million.
. Interest expense for the second quarter of 2001 was $9.5 million, relatively
flat from 2000.
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Ambac Second Quarter 2001 Earnings /6
Balance Sheet
- -------------
Highlights
. Total assets as of June 30, 2001 were $10.81 billion, up 7% from total assets
of $10.12 billion at December 31, 2000. As of June 30, 2001, stockholders'
equity was $2.79 billion, a 7% increase from year-end 2000 stockholders'
equity of $2.60 billion. The increase stemmed primarily from net income
during the period.
Increased Cash Dividend Declared
- --------------------------------
At its July 2001 Board meeting, the Board of Directors of Ambac Financial Group
Inc. approved a 13% increase in the regular quarterly cash dividend from $0.08
to $0.09 per share of common stock. The dividend is payable on September 5,
2001 to stockholders of record on August 10, 2001. Ambac has declared an
increased cash dividend in every year since going public in 1991.
Forward-Looking Statements
- --------------------------
In his remarks, the Chairman made 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; and (6) 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.
*******************
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 municipal 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).
********************
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Ambac Second Quarter 2001 Earnings /6
Footnotes
- ---------
Note: Common stock data has been retroactively adjusted to reflect the three-
for-two stock split effective December 12, 2000.
(1) Core earnings and operating earnings are not substitutes for net income
computed in accordance with accounting principles generally accepted in the
United States of America (GAAP), but are important measures used by
management, equity analysts and investors to measure Ambac's financial
results. The Company defines operating earnings as net income, less the
effect of realized gains and losses and certain non-recurring items. Core
earnings, which Ambac reports as analytical data, is defined as operating
earnings less net insurance premiums earned from refundings and calls. 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.
(2) 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. Previously, adjusted gross premiums written was net of premiums
related to international deals that were ceded to MBIA Insurance
Corporation pursuant to a joint venture that ceased during 2000. Prior
period amounts have been restated. 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.
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Ambac Financial Group, Inc. and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
For the Periods Ended June 30, 2001 and 2000
(Dollars in Thousands Except Share Data)
Three Months Ended Six Months Ended
June 30, June 30,
--------------------------------- ------------------------------
2001 2000 2001 2000
--------------------------------- ------------------------------
Revenues:
Financial Guarantee:
Gross premiums written $ 236,668 $ 121,669 $ 346,335 $ 191,007
Ceded premiums written (23,767) (26,247) (36,468) (42,374)
------------- ------------- ------------- -------------
Net premiums written $ 212,901 $ 95,422 $ 309,867 $ 148,633
============= ============= ============= =============
Net premiums earned $ 93,412 $ 80,921 $ 178,528 $ 152,079
Net fees and other premiums earned 7,971 2,301 13,100 5,048
Net investment income 65,058 58,902 129,534 116,533
Net realized gains (losses) 658 922 (3,624) 432
Financial Services:
Revenue 11,767 21,127 26,226 35,569
Net realized gains (losses) - (7,090) 1,065 (7,271)
Other:
Revenue 678 438 2,307 1,005
------------- ------------- ------------- -------------
Total revenues 179,544 157,521 347,136 303,395
------------- ------------- ------------- -------------
Expenses:
Financial Guarantee:
Losses and loss adjustment expenses 4,800 3,600 9,400 6,849
Underwriting and operating expenses 17,426 13,876 34,069 27,354
Financial Services 5,973 6,276 11,604 12,755
Interest 9,485 9,380 18,968 18,759
Other 1,714 2,219 3,451 3,414
------------- ------------- ------------- -------------
Total expenses 39,398 35,351 77,492 69,131
------------- ------------- ------------- -------------
Income before income taxes 140,146 122,170 269,644 234,264
Provision for income taxes 32,509 29,530 64,084 55,986
------------- ------------- ------------- -------------
Income before accounting change 107,637 92,640 205,560 178,278
Cumulative effect of accounting change
(net of income taxes of $219) - - (408) -
------------- ------------- ------------- -------------
Net income $ 107,637 $ 92,640 $ 205,152 $ 178,278
============= ============= ============= =============
Net income per share:
Basic $ 1.02 $ 0.88 $ 1.94 $ 1.70
============= ============= ============= =============
Diluted $ 0.99 $ 0.87 $ 1.88 $ 1.67
============= ============= ============= =============
Weighted average number of common shares outstanding:
Basic 105,816,151 104,743,016 105,739,608 104,768,535
============= ============= ============= =============
Diluted 109,051,506 106,889,822 108,954,037 106,825,926
============= ============= ============= =============
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets
June 30, 2001 and December 31, 2000
(Dollars in Thousands Except Share Data)
June 30, 2001 December 31, 2000
------------- -----------------
(unaudited)
Assets
- ------
Investments:
Fixed income securities, at fair value
(amortized cost of $7,457,931 in 2001 and $6,743,450 in 2000) $ 7,543,512 $ 6,825,152
Fixed income securities pledged as collateral, at fair value
(amortized cost of $1,338,850 in 2001 and $1,238,401 in 2000) 1,340,798 1,239,349
Short-term investments, at cost (approximates fair value) 217,090 253,519
Other 2,340 5,852
------------ ------------
Total investments 9,103,740 8,323,872
Cash 35,217 20,493
Cash pledged as collateral - 24,935
Securities purchased under agreements to resell 134,448 255,786
Receivable for investment agreements 65,212 6,663
Receivable for securities sold 551 1,926
Investment income due and accrued 114,910 130,692
Reinsurance recoverable 1,919 1,091
Prepaid reinsurance 246,538 242,604
Deferred acquisition costs 165,134 153,424
Loans 691,261 695,251
Other assets 250,086 263,563
------------ ------------
Total assets $ 10,809,016 $ 10,120,300
============ ============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Unearned premiums $ 1,681,159 $ 1,546,290
Losses and loss adjustment expense reserve 141,898 132,445
Ceded reinsurance balances payable 12,740 10,892
Obligations under investment and payment agreements 3,510,236 3,509,049
Obligations under investment repurchase agreements 1,580,433 1,383,882
Deferred income taxes 119,530 106,035
Current income taxes 25,339 25,628
Debentures 424,094 424,061
Accrued interest payable 71,584 90,575
Other liabilities 272,252 291,394
Payable for securities purchased 179,987 3,935
------------ ------------
Total liabilities 8,019,252 7,524,186
------------ ------------
Stockholders' equity:
Preferred stock - -
Common stock 1,060 1,060
Additional paid-in capital 540,026 533,558
Accumulated other comprehensive income 44,222 45,154
Retained earnings 2,212,762 2,035,209
Common stock held in treasury at cost (8,306) (18,867)
------------ ------------
Total stockholders' equity 2,789,764 2,596,114
------------ ------------
Total liabilities and stockholders' equity $ 10,809,016 $ 10,120,300
============ ============
Number of shares outstanding (net of treasury shares) 105,858,533 105,550,605
============ ============
Book value per share $ 26.35 $ 24.60
============ ============
Ambac Financial Group, Inc. and Subsidiaries
Supplemental Analytical Data: Components of Core Earnings /(1)/
For The Periods Ended June 30, 2001 and 2000
Three Months Ended Six Months Ended
June 30, June 30,
---------------------------- ----------------------------
2001 2000 2001 2000
----------- ------------ ----------- ------------
Net income $ 107,637 $ 92,640 $ 205,152 $ 178,278
Adjustments:
Net realized (gains) losses (428) 4,009 1,663 4,445
Non-recurring items - - 408 -
---------- ---------- ---------- -----------
Operating earnings 107,209 96,649 207,223 182,723
Refundings, calls and other accelerations (6,057) (5,905) (9,529) (8,530)
---------- ---------- ---------- -----------
Core earnings $ 101,152 $ 90,744 $ 197,694 $ 174,193
========== ========== ========== ===========
Ambac Financial Group, Inc. and Subsidiaries
Supplemental Analytical Data: Components of Adjusted Book Value Per Share /(2)/
June 30, 2001 and December 31,2000
June 30, December 31,
2001 2000
---- ----
Book value $26.35 $24.60
After-tax value of:
Net unearned premium reserve less
deferred acquisition costs 7.80 7.07
Present value of future installment premiums 5.35 4.71
Unrealized loss on investment
agreement liabilities (0.08) (0.03)
------ ------
Adjusted book value $39.42 $36.35
====== ======
(1) See footnote (1) in July 18, 2001 press release.
(2) Adjusted book value (ABV), which is not promulgated under 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)/
June 30, 2001 and December 31, 2000
(Dollars in Thousands, Except Ratios)
June 30, December 31,
2001 2000
------------ ------------
Capital and Claim-Paying Resources:
Contingency reserve $ 1,167,124 $ 1,080,748
Capital and surplus 1,725,254 1,655,151
------------ ------------
Qualified statutory capital 2,892,378 2,735,899
Unearned premiums 1,765,731 1,615,422
Losses and loss adjustment expenses 36,875 31,034
------------ ------------
Policyholders' reserves 4,694,984 4,382,355
Third party capital support /(2)/ 800,000 800,000
Present value of future installment premiums 871,450 763,882
------------ ------------
Total claims-paying resources $ 6,366,434 $ 5,946,237
============ ============
Net financial guarantees in force $447,975,474 $418,385,960
Capital ratio /(3)/ 155:1 153:1
Financial resources ratio /(4)/ 70:1 70:1
(1) Statutory accounting information for Ambac Assurance Corporation and Connie
Lee Insurance Company are combined for purposes of this schedule. Qualified
statutory capital for Ambac Assurance, on a stand alone basis, as of June
30, 2001 and December 31, 2000 are $2.871 billion and $2.716 billion,
respectively.
(2) Third party capital support represents a limited recourse irrevocable line
of credit with a group of high quality banks.
(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
Capitalization Table - GAAP
June 30, 2001 and December 31, 2000
(Dollars in Millions)
The following table sets forth Ambac Assurance's consolidated capitalization as
of June 30, 2001 and December 31, 2000, respectively, on the basis of accounting
principles generally accepted in the United States of America.
June 30, December 31,
2001 2000
------------- ------------
(unaudited)
Unearned premiums $ 1,691 $ 1,556
Other liabilities 695 581
--------- ----------
2,386 2,137
--------- ----------
Stockholder's equity:
Common stock 82 82
Additional paid-in capital 760 760
Accumulated other comprehensive income 77 82
Retained earnings 2,180 2,002
--------- ----------
Total stockholder's equity 3,099 2,926
--------- ----------
Total liabilities and stockholder's equity $ 5,485 $ 5,063
========= ==========