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Ambac Financial Group, Inc. Announces First Quarter Net Income of $221.1 Million, up 19%; First Quarter Net Income Per Diluted Share of $2.06, up 24%, First Quarter Credit Enhancement Production(1) $233.5 Million, up 17%.

Article Excerpt
NEW YORK -- Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today announced first quarter 2006 net income of $221.1 million, or $2.06 per diluted share. This represents a 19% increase from first quarter 2005 net income of $185.5 million, and a 24% increase in net income per diluted share from $1.66 in the first quarter of 2005.

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 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 (collectively "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 first quarter 2006, net security gains and losses had the effect of increasing net income by $8.1 million, $0.08 on a per diluted share basis. Accelerated earnings had the effect of increasing net income by $12.0 million, or $0.11 per diluted share for the first quarter 2006. Table I, below, provides first quarter comparisons of earnings for 2006 and 2005.

Table I First Quarter % 2006 2005 Change ---- ---- ------ Net income per diluted share $2.06 $1.66 +24% Effect of net security gains ($0.08) ($0.05) n.a. Non-recurring and other(a) $0.00 ($0.01) n.a. ----- ------- Operating earnings(b)(c) $1.98 $1.60 +24% Effect of accelerated earnings ($0.11) ($0.17) n.a. Core earnings(c) $1.87 $1.43 +31% (a) 2005 first quarter results have been adjusted downward by $1.2 million for expenses related to Ambac's contingent capital facility to be comparable with 2006 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. (c) Operating and core earnings are non-GAAP measures. See footnote 2 on page 10.

Commenting on the overall results, Ambac President and Chief Executive Officer, Robert J. Genader, noted, "This was another solid quarter for Ambac in a challenging business environment. The company's scale, market diversification and capacity continue to be highly valued by our global clients. These important attributes enable us to participate across a broad spectrum of profitable transactions both domestic and international." Mr. Genader further commented, "Although very large transactions were generally absent during the first quarter, several notable international deals have already closed in April."

Revenues

Highlights

--Credit enhancement production(1) in the first quarter of 2006 was $233.5 million, up 17% from the first quarter of 2005 which came in at $199.0 million. Growth in international and U.S. structured finance were partially offset by a decline in U.S. public finance.

Table II, below, provides the first quarter comparisons of credit enhancement production by market sector for 2006 and 2005. Table II Credit Enhancement Production(1) $-millions First Quarter % 2006 2005 Change ---- ---- ------ Public Finance $99.2 $109.0 -9% Structured Finance 90.7 76.9 +18% International 43.6 13.1 +233% ---- ---- Total $233.5 $199.0 +17%

--In public finance, Ambac's lower premium production was primarily driven by fewer transactions coming to market. Strong writings in the health care sector were offset by decreased writings in the transportation, tax backed, and municipal lease sectors. Overall municipal market issuance, as reported by third party sources, was 29% lower in the first quarter of 2006 than in the comparable prior period. Market data suggests that reduced refunding activity in the market caused the decrease. Insured market penetration was approximately 54%, lower than the first quarter of 2005 market penetration of approximately...

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