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Ambac Financial Group, Inc. Announces Second Quarter Net Income of $186.1 Million, up 3%; Second Quarter Net Income Per Diluted Share of $1.69, up 4%; Second Quarter Credit Enhancement Production(1) $397.9 Million, Down 3%.

Article Excerpt
NEW YORK -- Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today announced second quarter 2005 net income of $186.1 million, or $1.69 per diluted share. This represents a 3% increase from second quarter 2004 net income of $180.7 million, and a 4% increase in net income per diluted share from $1.63 in the second quarter of 2004.

Net Income Per Diluted Share

Net income and net income per diluted share are computed in conformity with U.S. generally accepted accounting principles (GAAP). However, many research analysts and investors do not limit their analysis of our earnings to a strictly GAAP basis. In order to assist investors in their understanding of quarterly results, Ambac provides other information.

Earnings measures reported by research analysts typically exclude the net income impact of net gains and losses from sales of investment securities and mark-to-market gains and losses on credit, total return and non-trading derivative contracts ("net security gains and losses") and certain non-recurring and other items. Certain research analysts and investors further exclude the net income impact of accelerated premiums earned on guaranteed obligations that have been refunded and other accelerated earnings ("accelerated earnings"). During the second quarter 2005, net security gains and losses had the effect of increasing net income by $14.9 million, $0.14 on a per diluted share basis. Accelerated earnings had the effect of increasing net income by $14.0 million, or $0.12 per diluted share for the second quarter 2005. Table I, below, provides second quarter and six-month comparisons for the years 2005 and 2004.

Table I Second Quarter Six Months % % 2005 2004 Change 2005 2004 Change ---- ---- ------ ---- ----- ------ Net income per diluted share $1.69 $1.63 + 4% $3.35 $3.18 + 5% Effect of net security gains ($0.14) ($0.04) n.a. ($0.19) ($0.11) n.a. Non-recurring and other(a) $0.00 ($0.02) n.a. $0.00 ($0.02) n.a. ------- ------- ------- ------- Sub-total excluding effect of net security gains/losses and non- recurring items(b) $1.55 $1.57 - 1% $3.16 $3.05 + 4% Effect of Accelerated earnings ($0.12) ($0.16) n.a. ($0.29) ($0.23) n.a. ------- ------- ------- ------- Total excluding items $1.43 $1.41 + 1% $2.87 $2.82 + 2% ======= ======= ======= =======

(a) 2004 second quarter and six months results have been adjusted by $2.2 million for expenses related to Ambac's contingent capital facility to be comparable with 2005 reporting.

(b) Consensus earnings that are reported by earnings estimate services, such as First Call, are on this basis, which excludes net security gains and losses and non-recurring items.

Commenting on the overall results, Ambac President and Chief Executive Officer, Robert J. Genader, noted, "Ambac's top line production results for the quarter are very gratifying considering the market conditions. While spreads remain tight in many asset classes, we continue to see significant opportunities to put our capital to use at attractive returns. Being a diversified, global guarantor with size and scale, Ambac is active in many different markets around the world. We continue to judiciously seek transactions in markets where we bring the most value. That is a strategy that has been prominent in driving our returns to be the best in the industry." Mr. Genader added, "Our overall results were impacted by market conditions in our financial services segment and do not reflect the reasonable quarter achieved within our primary business of financial guaranty."

Revenues

Highlights

--Credit enhancement production(1) in the second quarter of 2005 was $397.9 million, down 3% from the second quarter of 2004 which came in at $411.2 million. Growth in U.S. structured finance and international was more than offset by a decline in production in U.S. public finance.

Credit enhancement production for the six months of 2005 of $596.9 million was 11% lower than credit enhancement production of $670.0 million in the same period of 2004 due primarily to lower production in the U.S. public finance and international segments.

Table II, below, provides the second quarter and six-month comparisons of credit enhancement production by market sector, for 2005 and 2004.

Table II Credit Enhancement Production(1) $-millions Second Quarter Six Months % % 2005 2004 Change 2005 2004 Change ------- --------------- ------- --------------- Public Finance $170.0 $237.7 - 28% $279.0 $334.6 - 17% Structured Finance 141.6 89.6 + 58% 218.6 166.8 + 31% International 86.3 83.9 + 3% 99.3 168.6 - 41% ------- ------- ------- ------- Total $397.9 $411.2 - 3% $596.9 $670.0 - 11% ======= ======= ======= =======

--In Public Finance, municipal market issuance, as reported by third party sources, was 8% higher in the second quarter of 2005 than in the comparable prior period while...

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