Exhibit 99.02
Ambac Financial Group, Inc.
One State Street Plaza
New York, NY 10004
212.668.0340
News Release
For Immediate Release
Investor/Media Contact: Peter R. Poillon
(212) 208-3333
ppoillon@ambac.com
Web site: www.ambac.com
Ambac
AMBAC FINANCIAL GROUP, INC. ANNOUNCES
FIRST QUARTER NET INCOME OF $117.0 MILLION, UP 20%
First Quarter Operating Earnings Per Diluted Share/(1)/ of $1.10 up 20%,
Core Earnings Per Diluted Share/(1)/ Up 19%
First Quarter Adjusted Gross Premiums Written/(2)/ Increase 34%
NEW YORK, April 17, 2002--Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today
announced first quarter 2002 net income of $117.0 million or $1.07 per diluted
share. This represents a 20% increase from first quarter 2001 net income of
$97.5 million and a 19% increase from first quarter 2001 net income per diluted
share of $0.90.
Commenting on the results, Ambac Chairman and CEO Phillip B. Lassiter noted,
"The quarter evidenced solid business activity across our primary markets and
the prospects for the balance of the year continue to be quite attractive."
Earnings Per Diluted Share
- --------------------------
In addition to net income, Ambac presents operating earnings and core earnings,
as discussed in Footnote 1. These measures are not substitutes for net income
computed in accordance with accounting principles generally accepted in the
United States of America (GAAP). They are useful for analysis in that they
eliminate certain items, such as net realized and unrealized gains and losses on
investment securities and structured credit derivatives, the effect of
refundings and calls and certain non-recurring items, to highlight the more
consistent elements of earnings.
For the first quarter of 2002, operating earnings were $119.7 million, up 19%
from the $100.4 million in operating earnings for the first quarter of 2001.
Core earnings for the first quarter of
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Ambac First Quarter 2002 Earnings/2
2002 were $115.5 million, an increase of 19% from $97.0 million in core earnings
for the first quarter of 2001.
The following table shows net income, operating earnings and core earnings, all
per diluted share:
Table I
First Quarter
%
2002 2001 Change
---- ---- ------
Net income per diluted share $1.07 $0.90 +19%
Operating earnings per diluted share $1.10 $0.92 +20%
Core earnings per diluted share $1.06 $0.89 +19%
Revenues
- --------
Total revenues in the first quarter of 2002, excluding net gains and losses on
investment securities and structured credit derivatives, were $201.1 million, an
increase of 17% from $171.5 million in revenues for the first quarter of 2001.
Highlights
. Adjusted gross premiums written/(2/ in the first quarter of 2002 were $211.9
million, up 34% from $157.6 million in the first quarter of 2001. All three
areas of business, public, structured and international finance, saw strong
premium growth.
In public finance, Ambac's insured volume reflects, in part, the
significant increase in new issuance of municipal bonds and higher
insurance penetration in the first quarter of 2002, versus the comparable
period of 2001. Ambac saw increased activity in lease-backed and tax-backed
transactions and underwrote a large stadium transaction during the quarter.
Structured finance growth during the quarter was driven by an increase in
collateralized bond obligation writings while consumer mortgage-backed
securities writings remain solid. In international finance, deal flow was
especially strong in Japan and the UK.
A breakdown of adjusted gross premiums written by market sector is included
below as Table II.
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Ambac First Quarter 2002 Earnings/3
Table II
Adjusted Gross Premiums Written
$-millions First Quarter
%
2002 2001 Change
---- ---- ------
Public Finance $ 73.6 $ 43.8 +68%
Structured Finance 79.1 62.2 +27%
International 59.2 51.6 +15%
------ ------
Total $211.9 $157.6 +34%
. Net premiums written in the first quarter of 2002 of $129.8 million were
34% higher than net premiums written of $97.0 million in the same period of
2001. Gross premiums written for the first quarter of 2002 were offset by
$19.5 million in ceded premiums. In the first quarter of 2001, ceded
premiums were $12.7 million.
. Net premiums earned and other credit enhancement fees for the first
quarter of 2002 were $109.9 million, which represented a 22% increase from
the $89.8 million earned in the first quarter of 2001. Net premiums earned
increased for all market segments. Public finance displayed steady earned
premium growth resulting from the increased activity in that market over
the past year, and is enhanced by the company's focus on highly structured
municipal obligations. Earned premium growth for structured finance is
driven primarily by the high volume of asset-backed transactions of the
past few quarters. The growth was partially offset during the quarter by
the continued high level of pay-downs of previously insured mortgage-backed
transactions. International earned premium growth also accelerated during
the quarter, primarily as a result of recent strong activity in the Private
Finance Initiative UK market, Japanese asset-backed transactions and the
growth of the structured credit derivatives book of business.
Net premiums earned include accelerated premiums, which result from
refundings and calls recognized during the quarter. Earnings from
refundings and calls occur primarily in the municipal bond market where
premiums are generally paid up front. Accelerated premiums were $7.3
million in the first quarter of 2002 (which had a net income per diluted
share effect of $0.04), up 20% from $6.1 million ($0.03 per diluted share)
in accelerated premiums in the first quarter of 2001. This increase is
largely due to the continued relatively low interest rate environment in
the public finance sector. Earnings from refundings and calls represented
3.6% of operating earnings during the first quarter of 2002.
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Amabac First Quarter 2002 Earnings/4
Mr. Lassiter commented, "The impact of refundings on our bottom line has
diminished greatly over time as we have broadened the markets that we serve. I
expect that trend to continue."
A breakdown of normal net premiums earned and other credit enhancement fees by
market sector is 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
%
2002 2001 Change
---- ---- ------
Public Finance $ 37.0 $ 32.7 +13%
Structured Finance 41.4 34.7 +19%
International 24.2 16.3 +48%
------ ------
Total Normal Premiums/Fees $102.6 $ 83.7 +23%
Accelerated Premiums 7.3 6.1 +20%
------ ------
Total $109.9 $ 89.8 +22%
. Net investment income for the first quarter of 2002 was $72.5 million,
representing an increase of 12% from $64.5 million in the comparable period
of 2001. This increase was due primarily to the growth in the investment
portfolio from ongoing operations, partially offset by a lower reinvestment
rate stemming from the current interest rate environment. Investment income
was also positively impacted by the proceeds from Ambac's $200 million debt
offering in October 2001.
. Financial services revenues, excluding net gains and losses on investment
securities, were $16.6 million in the first quarter of 2002, up 14% from
the $14.5 million in revenues for the first quarter of 2001. Financial
services revenues include revenues from derivative products, investment
agreements and money management. The increase in revenues is primarily due
to increased investment agreement revenues. Derivative product revenues
were relatively flat as compared to a strong first quarter 2001.
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Ambac First Quarter 2002 Earnings/5
Expenses
- --------
Highlights
. Financial guarantee expenses of $24.3 million for the first quarter of 2002
increased by 15% over the $21.2 million of expenses for the same quarter of
2001. This increase was primarily due to higher compensation costs and
additions to the general loss provision.
. Financial services expenses for the first quarter of 2002 of $5.1 million
declined by 9% from $5.6 million in expenses for the first quarter of 2001.
This decline was due primarily to a one-time reversal of employee benefit
expense accruals.
Other Items
- -----------
. Total net securities gains/(losses) for the first quarter of 2002 were
($4.2) million, consisting of net realized losses on investment securities
of $0.2 million and a mark-to-market loss on credit derivatives of $4.0
million. For the first quarter of 2001 net securities gains/(losses) were
($4.5) million, consisting of net realized losses on investment securities
of $3.8 million and a mark-to-market loss on credit derivatives of $0.7
million.
. Interest expense for the first quarter of 2002 was $10.7 million, up 13%
from $9.5 million for the first quarter of 2001. The increase is
attributable to Ambac's issuance of $200 million in 50-year debentures in
October 2001.
Balance Sheet
- -------------
Highlights
. Total assets as of March 31, 2002 were $12.83 billion, up 5% from total
assets of $12.27 billion at December 31, 2001. This increase was due
primarily to cash generated from business written during the period and
higher volume in the guaranteed investment contract business. As of March
31, 2002, stockholders' equity was $3.05 billion, a 2% increase from
year-end 2001 stockholders' equity of $2.98 billion. The increase stemmed
primarily from net income during the period, partially offset by a decrease
in the market value of investment securities included in equity. The
decreased market value was due to an increase in interest rates during the
quarter.
2002 Operating Earnings Guidance
- --------------------------------
Ambac management currently anticipates operating earnings per diluted share for
2002 of $4.50-$4.60. For the definition of operating earnings, please refer to
Footnote 1.
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Ambac First Quarter 2002 Earnings/6
Annual Meeting of Stockholders
- ------------------------------
The 2002 Annual Meeting of Stockholders is scheduled for Tuesday, May 7, 2002,
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 close of business,
March 18, 2002.
Forward-Looking Statements
- --------------------------
This release, in particular the Chairman's remarks and the section titled "2002
Operating Earnings Guidance", 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.
*******************
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).
********************
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Ambac First Quarter 2002 Earnings/7
Footnotes
- ---------
(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 and unrealized gains and losses on investment securities
and structured credit derivatives 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. 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 March 31, 2002 and 2001
(Dollars in Thousands Except Share Data)
Three Months Ended
March 31,
------------------------------
2002 2001
------------------------------
Revenues:
Financial Guarantee:
Gross premiums written $ 149,361 $ 109,667
Ceded premiums written (19,549) (12,701)
------------ ------------
Net premiums written $ 129,812 $ 96,966
============ ============
Net premiums earned $ 103,654 $ 85,116
Other credit enhancement fees 6,288 4,653
------------ ------------
Net premiums earned and other credit enhancement fees 109,942 89,769
Net investment income 72,547 64,476
Net securities losses /(1)/ (4,571) (4,938)
Other income 1,314 1,132
Financial Services:
Revenue 16,591 14,459
Net securities gains 358 438
Other:
Revenue 729 1,629
------------ ------------
Total revenues 196,910 166,965
------------ ------------
Expenses:
Financial Guarantee:
Losses and loss adjustment expenses 5,700 4,600
Underwriting and operating expenses 18,561 16,643
Financial Services 5,136 5,631
Interest 10,666 9,483
Other 1,466 1,737
------------ ------------
Total expenses 41,529 38,094
------------ ------------
Income before income taxes 155,381 128,871
Provision for income taxes 38,429 31,356
------------ ------------
Net income $ 116,952 $ 97,515
============ ============
Net income per share:
Basic $ 1.11 $ 0.92
============ ============
Diluted $ 1.07 $ 0.90
============ ============
Weighted average number of common shares outstanding:
Basic 105,831,879 105,663,065
============ ============
Diluted 109,153,901 108,844,261
============ ============
(1) Includes net gains (losses) on investment securities sold of ($500) and
($4,282) for the first quarter of 2002 and 2001, respectively, and change
in fair value of credit derivatives of ($4,071) and ($656) for the
first quarter of 2002 and 2001, respectively.
Ambac Financial Group, Inc. and Subsidiaries
Consolidated Balance Sheets
March 31, 2002 and December 31, 2001
(Dollars in Thousands Except Share Data)
March 31, 2002 December 31, 2001
------------- -----------------
(Unaudited)
Assets
- ------
Investments:
Fixed income securities, at fair value
(amortized cost of $9,443,033 in 2002 and $8,355,596 in 2001) $ 9,488,943 $ 8,469,157
Fixed income securities pledged as collateral, at fair value
(amortized cost of $1,084,357 in 2002 and $1,393,193 in 2001) 1,082,726 1,401,528
Short-term investments, at cost (approximates fair value) 337,180 415,002
Other 3,055 2,163
------------- -------------
Total investments 10,911,904 10,287,850
Cash 49,343 76,580
Cash pledged as collateral 7,453 -
Securities purchased under agreements to resell - 11,200
Receivable for investment agreements 169 4,101
Receivable for securities sold 10,478 8,922
Investment income due and accrued 119,611 144,463
Reinsurance recoverable 2,055 2,259
Prepaid reinsurance 267,989 267,655
Deferred acquisition costs 167,423 163,477
Loans 892,774 901,194
Other assets 404,535 399,994
------------- -------------
Total assets $ 12,833,734 $ 12,267,695
============= =============
Liabilities and Stockholders' Equity
- ------------------------------------
Liabilities:
Unearned premiums $ 1,806,564 $ 1,780,272
Losses and loss adjustment expense reserve 155,893 152,352
Ceded reinsurance balances payable 7,710 10,146
Obligations under investment and payment agreements 4,551,057 4,089,777
Obligations under investment repurchase agreements 1,306,744 1,422,151
Securities sold under agreement to repurchase 422,000 425,000
Deferred income taxes 96,694 123,077
Current income taxes 52,904 98,145
Debentures 621,421 619,315
Accrued interest payable 63,437 84,225
Other liabilities 423,377 416,632
Payable for securities purchased 271,728 62,915
------------- -------------
Total liabilities 9,779,529 9,284,007
------------- -------------
Stockholders' equity:
Preferred stock - -
Common stock 1,060 1,060
Additional paid-in capital 542,860 538,135
Accumulated other comprehensive income 14,823 62,476
Retained earnings 2,500,605 2,403,473
Common stock held in treasury at cost (5,143) (21,456)
------------- -------------
Total stockholders' equity 3,054,205 2,983,688
------------- -------------
Total liabilities and stockholders' equity $ 12,833,734 $ 12,267,695
============= =============
Number of shares outstanding (net of treasury shares) 105,929,939 105,584,049
============= =============
Book value per share $ 28.83 $ 28.26
============= =============
Ambac Financial Group, Inc. and Subsidiaries
Supplemental Analytical Data: Components of Core Earnings/(1)/
For The Periods Ended March 31, 2002 and 2001
Three Months Ended
March 31,
--------------------------------
2002 2001
--------------------------------
Net income $ 116,952 $ 97,515
Adjustments:
Net securities losses 2,738 2,925
------------- ---------------
Operating earnings 119,690 100,440
Refundings, calls and other accelerations (4,159) (3,472)
------------- ---------------
Core earnings $ 115,531 $ 96,968
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Ambac Financial Group, Inc. and Subsidiaries
Supplemental Analytical Data: Components of Adjusted Book Value Per Share/(2)/
March 31, 2002 and December 31,2001
March 31, December 31,
2002 2001
----- ----
Book value $ 28.83 $ 28.26
After-tax value of:
Net unearned premium reserve less
deferred acquisition costs 8.41 8.31
Present value of future installment premiums 6.15 6.07
Unrealized loss on investment
agreement liabilities (0.23) (0.61)
---------- ----------
Adjusted book value $ 43.16 $ 42.03
========== ==========
(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 and unrealized 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 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)/
March 31, 2002 and December 31, 2001
(Dollars in Thousands, Except Ratios)
March 31, December 31,
2002 2001
------------ ------------
Capital and Claim-Paying Resources:
Contingency reserve $ 1,318,423 $ 1,265,652
Capital and surplus 2,066,549 1,996,284
------------ ------------
Qualified statutory capital 3,384,972 3,261,936
Unearned premiums 1,896,056 1,860,090
Losses and loss adjustment expenses 27,848 27,835
------------ ------------
Policyholders' reserves 5,308,876 5,149,861
Third party capital support/(2)/ 800,000 800,000
Present value of future installment premiums 1,002,092 986,760
------------ ------------
Total claims-paying resources $ 7,110,968 $ 6,936,621
============ ============
Net financial guarantees in force $484,147,214 $476,189,690
Capital ratio/(3)/ 143:1 146:1
Financial resources ratio/(4)/ 68:1 69:1
(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 March
31, 2002 and December 31, 2001 are $3.362 billion and $3.240 billion,
respectively.
(2) Third party capital support represents a limited recourse irrevocable line
of credit with a group of high quality banks for $400 million and
pre-funded capital which provides for the unconditional ability to issue up
to $400 million of preferred stock to a high quality asset-backed trust.
(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, 2002 and December 31, 2001
(Dollars in Millions)
The following table sets forth Ambac Assurance's consolidated capitalization as
of March 31, 2002 and December 31, 2001, respectively, on the basis of
accounting principles generally accepted in the United States of America.
March 31, December 31,
2002 2001
-------------- ------------
(unaudited)
Unearned premiums $ 1,817 $ 1,790
Other liabilities 835 888
-------------- ------------
2,652 2,678
-------------- ------------
Stockholder's equity:
Common stock 82 82
Additional paid-in capital 928 928
Accumulated other comprehensive income 53 81
Retained earnings 2,488 2,386
-------------- ------------
Total stockholder's equity 3,551 3,477
-------------- ------------
Total liabilities and stockholder's equity $ 6,203 $ 6,155
============== ============