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Ambac Financial Group, Inc. Announces Second Quarter Net Income of $238.6 Million, up 28%; Second Quarter Net Income Per Diluted Share of $2.22, up 31%; Second Quarter Credit Enhancement Production(1) $531.0 million, up 33%.

Article Excerpt
NEW YORK -- Ambac Financial Group, Inc. (NYSE: ABK) (Ambac) today announced second quarter 2006 net income of $238.6 million, or $2.22 per diluted share. This represents a 28% increase from second quarter 2005 net income of $186.1 million, and a 31% increase in net income per diluted share from $1.69 in the second 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 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 2006, net security gains and losses had the effect of increasing net income by $32.9 million, $0.31 on a per diluted share basis. Accelerated earnings had the effect of increasing net income by $22.8 million, or $0.21 per diluted share for the second quarter 2006. Table I, below, provides second quarter and six-month comparisons of earnings for 2006 and 2005.

Table I Earnings Per Diluted Share Second Quarter Six Months % % 2006 2005 Change 2006 2005 Change ------------------------------------------------ Net income per diluted share $2.22 $1.69 + 31% $4.28 $3.35 + 28% Effect of net security gains ($0.31) ($0.14) n.a. ($0.38) ($0.19) n.a. Other $0.00 $0.01 n.a. $0.00 $0.00 n.a. ---------------- ---------------- Operating earnings (a)(b) $1.91 $1.56 + 22% $3.90 $3.16 + 23% Effect of accelerated earnings ($0.21) ($0.12) n.a. ($0.32) ($0.29) n.a. ---------------- ---------------- Core earnings(b) $1.70 $1.44 + 18% $3.58 $2.87 + 25% ================ ================ (a) Consensus earnings that are reported by earnings estimate services, such as First Call, are on this basis. (b) Operating and core earnings are non-GAAP measures. See footnote 2 on page 10.

Commenting on the overall results, Ambac Chairman and Chief Executive Officer, Robert J. Genader, noted, "I am encouraged by the strong credit enhancement production and solid financial results for the quarter. The company's ability to produce record results in this suboptimal business environment is a testament to our people and our strategy. We continue to uncover attractive opportunities to put our capital to work in the short-term and I am confident that the company is well positioned both domestically and internationally for the long-term."

Revenues

Highlights

-- Credit enhancement production(1) in the second quarter of 2006 was $531.0 million, up 33% from the second quarter of 2005 which came in at $397.9 million. Growth in international and U.S. structured finance was partially offset by a decline in U.S. public finance.

Credit enhancement production for the six months of 2006 of $764.4 million was 28% higher than credit enhancement production of $596.9 million in the same period of 2005.

Table II, below, provides the second quarter and six-month comparisons of credit enhancement production by market segment for 2006 and 2005.

Table II Credit Enhancement Production(1) $-millions Second Quarter Six Months % % 2006 2005 Change 2006 2005 Change ------------------------------------------------ Public Finance $132.1 $170.0 - 22% $231.2 $279.0 - 17% Structured Finance 212.8 141.6 + 50% 303.5 218.6 + 39% International 186.1 86.3 + 116% 229.7 99.3 + 131% ---------------- ---------------- Total $531.0 $397.9 + 33% $764.4 $596.9 + 28% ================ ================

-- In public finance, Ambac's premium production was lower as market issuance declined slightly. Overall municipal market issuance, as reported by third party sources, was down 3% quarter on quarter. A significant reduction in refunding issuance was almost entirely offset by strong new money issuance during the quarter. However, the primary driver of the decline in credit enhancement production was the change in the mix of credit quality of municipal transactions that came to market during...

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