Ambac Financial Group, Inc. Announces Fourth Quarter Net Income of $202.7 Million, Down 1%.Fourth Quarter Net Income Per Diluted di·lute tr.v. di·lut·ed, di·lut·ing, di·lutes 1. To make thinner or less concentrated by adding a liquid such as water. 2. To lessen the force, strength, purity, or brilliance of, especially by admixture. Share of $1.88, Down 1%, Fourth Quarter Credit Enhancement Credit Enhancement A method whereby a company attempts to improve its debt or credit worthiness. Notes: Credit enhancements take many different forms. An example of a credit enhancement would be conversion rights added on to a debt instrument in order to lower the issuing Production((1)) $314.5 Million, Down 21% NEW YORK New York, state, United States New York, Middle Atlantic state of the United States. It is bordered by Vermont, Massachusetts, Connecticut, and the Atlantic Ocean (E), New Jersey and Pennsylvania (S), Lakes Erie and Ontario and the Canadian province of -- Ambac Financial Group Ambac Financial Group (NYSE: ABK) is an American Insurer of bonds, including municipal bonds. Ambac Financial Group, Inc. (NYSE: ABK) is a holding company whose subsidiaries provide financial guarantee products and other financial services to clients in both , Inc. (NYSE NYSE See: New York Stock Exchange : ABK ABK Abkuerzung (German: Abbreviation) ABK Anybody Killa (musician) ABK Ahli Bank of Kuwait ABK American Bank of Kosovo ABK Aphakic Bullous Keratopathy (ophthalmology) ) (Ambac) today announced fourth quarter 2006 net income of $202.7 million, or $1.88 per diluted share. This represents a 1% decrease from fourth quarter 2005 net income of $204.3 million, or $1.90 per diluted share. Net Income Per Diluted Share Net income and net income per diluted share are computed in conformity with U.S. generally accepted accounting principles The standard accounting rules, regulations, and procedures used by companies in maintaining their financial records. Generally accepted accounting principles (GAAP) provide companies and accountants with a consistent set of guidelines that cover both broad accounting (GAAP GAAP See: Generally Accepted Accounting Principles GAAP See 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 fourth quarter 2006, net security gains and losses had the effect of increasing net income by $3.6 million, or $0.04 on a per diluted share basis. Other items during the fourth quarter 2006 had a net income effect of ($3.9) million, ($0.04) on a per diluted share basis, and represents the write-off of previously deferred issuance expenses related to debentures that were redeemed in October 2006. Accelerated earnings had the effect of increasing net income by $18.1 million, or $0.17 per diluted share for the fourth quarter 2006. Table I, below, provides fourth quarter and full year comparisons of earnings for 2006 and 2005. [TABLE OMITTED] Commenting on the overall results, Ambac Chairman and Chief Executive Officer, Robert J. Genader, noted, "I am satisfied with our overall business results for the quarter and for the full year. Despite one of the most difficult business environments the industry has faced in many years, Ambac's full-year top line production is very acceptable. Most gratifyingly grat·i·fy tr.v. grat·i·fied, grat·i·fy·ing, grat·i·fies 1. To please or satisfy: His achievement gratified his father. See Synonyms at please. 2. , our record-level full-year international production demonstrates our success in expanding our global reach, as our triple-A financial strength and reputation for innovative and efficient execution is now firmly planted across a broad segment of the international markets." Revenues Highlights Credit enhancement production((1)) in the fourth quarter of 2006 was $314.5 million, down 21% from the fourth quarter of 2005 which came in at $395.8 million. Growth in international was more than offset by declines in U.S. public finance and U.S. structured finance. Credit enhancement production((1)) for the full year of 2006 of $1,295.2 million was 4% higher than credit enhancement production of $1,249.4 million in 2005, as significant growth in international business more than offset the decline in the U.S. public finance business. Table II, below, provides the fourth quarter and full year comparisons of credit enhancement production by market segment for 2006 and 2005. [TABLE OMITTED] In public finance, Ambac's premium production was lower while overall market issuance, as reported by third party sources, was up approximately 24% quarter on quarter. The increase in issuance for the quarter was driven by strong new-money issuance across a broad range of municipal sectors. Ambac's market share remained stable at approximately 23% but the mix of business written in the fourth quarter 2006 varied significantly from the comparable prior period. Ambac's fourth quarter 2005 production included three large, well-priced transactions and strong business flow in the health care sector. While fourth quarter 2006 overall market deal flow was fairly strong, the mix of issuance during the quarter was more inclined towards smaller, less complex transactions. Additionally, pricing continues to be negatively affected by competition from other financial guarantors. U.S. structured finance production during the quarter was lower as the fourth quarter 2005 included two very large transactions (an auto rental securitization Securitization The process of creating a financial instrument by combining other financial assets and then marketing them to investors. Notes: Mortgage backed securities are a perfect example of securitization. May also be spelled as "securitisation. and a commercial asset-backed securitization) which combined represented almost 40% of the total structured finance production from that period. Otherwise, the current quarter was characterized by increased business activity in the investor-owned utility, pooled debt obligations and consumer asset-backed securities Asset-backed security A security that is collateralized by loans, leases, receivables, or installment contracts on personal property, not real estate. asset-backed security A debt security collateralized by specific assets. sectors. Competition from the senior/subordinated market remains challenging and spreads remain tight across most asset classes of U.S. structured finance. International production was stronger as Ambac closed three large U.K. transactions in the current quarter and the geographic breadth of transactions closed was once again, encouraging. During the quarter, Ambac closed deals in five different countries along with several multi-national pooled debt obligations transactions. Management continues to believe that the broad international markets provide an array of opportunities and will be a driver of short-term and long-term growth for the industry. Net premiums written (which represent premiums collected during the period, net of reinsurance The contract made between an insurance company and a third party to protect the insurance company from losses. The contract provides for the third party to pay for the loss sustained by the insurance company when the company makes a payment on the original contract. ) in the fourth quarter of 2006 of $223.6 million were 17% lower than net premiums written of $268.1 million in the comparable period of 2005. Gross premiums written When a non-life insurance company closes a contract to provide insurance against loss, the revenues (premiums) expected to be received over the life of the contract are called gross premiums written. in the fourth quarter of 2006 and 2005 were $251.8 million and $306.1 million, respectively. The decreases in net and gross premiums written are primarily attributable to less U.S. public finance business written during the fourth quarter of 2006. Ceded premiums as a percentage of gross premiums written were 11.2% and 12.4% for the fourth quarter of 2006 and 2005, respectively. Net premiums written for the full year of 2006 of $893.2 million were 10% lower than net premiums written of $996.3 million in 2005. Excluding the impact of return premiums from reinsurance cancellations in each of the years ($37.0 million in the first quarter of 2006 and $55.8 million in the first quarter of 2005), net premiums written are down 9% year on year primarily due to less U.S. public finance business written during 2006. A breakdown of gross premiums written by market segment and ceded premiums for the fourth quarter and full year 2006 and 2005 are included below in Table III. [TABLE OMITTED] Net premiums earned and other credit enhancement fees for the fourth quarter of 2006 were $223.4 million, which represented a 3% increase from the $217.6 million earned in the fourth quarter of 2005. The increase was driven by higher normal premiums and other credit enhancement fees across all segments, partially offset by lower accelerated premiums from refundings and policy termination fees termination fee The one-time charge for terminating or transferring an individual retirement account. If a financial institution charges a termination fee, the fee must be spelled out in the original agreement that is signed when the account is opened. . Net premiums earned include accelerated premiums, which result from refundings, calls and other accelerations recognized during the quarter. Accelerated premiums were $32.1 million in the fourth quarter of 2006, down 9% from $35.4 million in accelerated premiums in the fourth quarter of 2005. Net premiums earned and other credit enhancement fees for the full year 2006 were $871.4 million, up 1% from $866.4 million earned in 2005. Accelerated premiums were $119.0 million for the full year 2006, down 17% from $143.3 million in accelerated premiums in 2005. A breakdown of net premiums earned and other credit enhancement fees by market segment for the fourth quarter and full year 2006 and 2005 are included below in Table IV. Normal net premiums earned exclude accelerated premiums that result from refundings, calls and other accelerations. [TABLE OMITTED] Public finance earned premiums Earned premium is the portion of an insurance written premium which is considered "earned" by the insurer, based on the part of the policy period that the insurance has been in effect, and during which the insurer has been exposed to loss. , before accelerations, grew 2% this quarter. Earned premium growth in this segment has been negatively impacted by the high level of refunding activity in Ambac's public finance book over the past two years, increasingly competitive pricing and the mix of business underwritten in recent periods. Structured finance earned premiums and other credit enhancement fees grew 7%. The rate of growth in structured finance improved in 2006 driven by strong recent premium production in asset classes such as commercial asset-backed securities, auto securitizations and pooled debt obligations. Narrow credit spreads and accelerated prepayment speeds Prepayment speed Also called speed, the estimated rate at which mortgagors pay off their loans ahead of schedule, critical in assessing the value of mortgage pass-through securities. in the mortgage-backed and home equity book of business persist, continuing to partially offset the positive effects of new business writings in other asset classes. International earned premiums and other credit enhancement fees increased 5%. This represents the first increase in this segment since the third quarter 2005 and was driven primarily by strong business writings across many geographies and asset classes during 2006. The paydowns and calls that had beset be·set tr.v. be·set, be·set·ting, be·sets 1. To attack from all sides. 2. To trouble persistently; harass. See Synonyms at attack. 3. the international business in 2005 and the first half of 2006, slowed in the latter half of this year. Net investment income for the fourth quarter of 2006 was $110.5 million, representing an increase of 14% from $96.7 million in the comparable period of 2005. This increase was due primarily to growth in the investment portfolio driven by the ongoing collection of financial guarantee premiums and fees and a $200 million capital contribution from the parent company that occurred in late December 2005. Note that Ambac has deconsolidated its previously reported Variable Interest Entities ("VIEs") due to new interpretive in·ter·pre·tive also in·ter·pre·ta·tive adj. Relating to or marked by interpretation; explanatory. in·ter  pre·tive·ly adv. guidance
recently issued by the Financial Accounting Standards Board Financial Accounting Standards Board (FASB)Board composed of independent members who create and interpret Generally Accepted Accounting Principles (GAAP). . Affected balances in all accounts, primarily investment income and interest expense, have been adjusted accordingly for all periods presented. Net investment income for the full year of 2006 was $423.9 million, representing an increase of 12% from $378.1 million in the comparable period of 2005, primarily as a result of the reasons provided above. Financial services The examples and perspective in this article or section may not represent a worldwide view of the subject. Please [ improve this article] or discuss the issue on the talk page. revenues. The financial services segment is comprised of the investment agreement business and the derivative products business. Gross interest income less gross interest expense from investment and payment agreements plus results from the derivative products business, excluding net realized investment gains and losses and unrealized gains Unrealized Gain A profit that results from holding on to an asset rather than cashing it in and using the funds. Notes: Let's say you own a stock that has doubled, but you haven't sold it yet. This is said to be an unrealized gain. and losses on total return swaps Total Return Swap Any swap in which the non-floating rate side is based on the total return of an equity or fixed income instrument with a life longer than the swap. Notes: Total return swaps are most common in equity or physical commodity markets. and non-trading derivative contracts, was $12.7 million in the fourth quarter of 2006, up 11% from $11.4 million in the fourth quarter of 2005. The increase was primarily due to higher mark-to-market gains included within derivative products revenues in the fourth quarter 2006. Financial services revenues were $48.5 million in the full year 2006, up 4% from the $46.8 million of revenues in 2005. Expenses Highlights Financial guarantee expenses of $43.4 million for the fourth quarter of 2006 were flat compared to $43.5 million of expenses for the fourth quarter of 2005. Financial guarantee loss and loss expenses were $9.6 million in the fourth quarter of 2006, down from $15.6 million in the fourth quarter of 2005. See "Loss Reserve Activity," below, for additional information on losses. Net underwriting Underwriting 1. The process by which investment bankers raise investment capital from investors on behalf of corporations and governments that are issuing securities (both equity and debt). 2. The process of issuing insurance policies. and operating expenses Operating expenses The amount paid for asset maintenance or the cost of doing business, excluding depreciation. Earnings are distributed after operating expenses are deducted. of the financial guarantee segment totaled $33.8 million in the fourth quarter of 2006, up 21% from $27.9 million in the fourth quarter of 2005 primarily due to increased compensation expense. Financial guarantee expenses of $153.7 million for the full year 2006 decreased 43% from $267.6 million in 2005. The decrease results primarily from lower loss expenses partially offset by higher compensation expenses in 2006. Loss Reserve Activity Case basis loss reserves (loss reserves for exposures that have defaulted) decreased $84.2 million during the fourth quarter of 2006 from $126.7 million at September 30, 2006 to $42.5 million at December 31, 2006. The decrease was driven by the settlement of several impaired transactions during the quarter including a health care transaction that had been fully-reserved. Total claim payments during the quarter amounted to $68.8 million. Active credit reserves ("ACR See riser card. ") are established for probable and estimable es·ti·ma·ble adj. 1. Possible to estimate: estimable assets; an estimable distance. 2. Deserving of esteem; admirable: an estimable young professor. losses due to credit deterioration on certain adversely classified insured transactions. Ambac continuously monitors its insured portfolio actively seeking to mitigate claims. The ACR increased by $25.0 million during the quarter, from $147.6 million at September 30, 2006 to $172.6 million at December 31, 2006. The increase was driven primarily by net increases in reserves on certain credits within the U.S. public finance portfolio, most notably within the transportation sector. At December 31, 2006, the specific Hurricane Katrina-related provision amounts to $50.1 million, down slightly from $50.5 million at September 30, 2006. Ambac did not pay any Katrina-related claims during the year. Other Items Total net securities gains/(losses) for the fourth quarter of 2006 were $5.8 million, or $0.04 per diluted share; consisting of net realized gains Realized Gain A gain resulting from selling an asset at a price higher than the original purchase price. Notes: There may be tax consequences for a realized profit. on investment securities of $9.6 million, net mark-to-market losses on credit and total return derivatives of ($4.8) million and net mark-to-market gains on non-trading derivative contracts of $1.0 million. For the fourth quarter of 2005, net securities gains/(losses) were $20.0 million, or $0.12 per diluted share; consisting of net realized losses Realized Loss A loss recognized when assets are sold for a price lower than the original purchase price. Notes: A portion of the realized loss may be applied against a capital gain or realized profit to reduce taxes. on investment securities of ($2.2) million, net mark-to-market gains on credit and total return derivatives of $22.0 million and net mark-to-market gains on non-trading derivative contracts of $0.2 million. Total net securities gains/(losses) for the full year of 2006 were $80.2 million, or $0.48 per diluted share; consisting of net realized gains on investment securities of $67.1 million, net mark-to-market gains on credit and total return derivatives of $11.6 million and net mark-to-market gains on non-trading derivative contracts of $1.5 million. Approximately $56 million of the net realized gains on investment securities in 2006 relate to cash recoveries received during the year related to a security in the investment agreement portfolio that had been written down in 2002 and 2003. For the full year of 2005, net securities gains were $73.1 million, or $0.40 per diluted share; consisting of net realized gains on investment securities of $8.6 million, mark-to-market gains on credit derivatives Credit Derivative Privately held negotiable bilateral contracts that allow users to manage their exposure to credit risk. Credit derivatives are financial assets like forward contracts, swaps, and options for which the price is driven by the credit risk of economic agents (private and total return swaps of $15.0 million and net mark-to-market gains on non-trading derivative contracts of $49.5 million. The mark-to-market gains on non-trading derivative contracts relate almost entirely to interest rate hedge contracts in Ambac's investment agreement business that were redesignated to meet the technical requirements of FAS 133 as of July 1, 2005. Balance Sheet Highlights Total assets as of December 31, 2006 were $20.27 billion, up 9% from total assets of $18.55 billion at December 31, 2005. The increase was driven primarily by cash generated from operations during the period. As of December 31, 2006, stockholders' equity Stockholders' Equity The portion of the balance sheet that includes capital received from investors in exchange for stock (paid-in capital), donated capital, and retained earnings. This is equal to total assets minus liabilities, preferred stock and intangible assets. was $6.18 billion, a 15% increase from year-end 2005 stockholders' equity of $5.38 billion. The increase was primarily the result of net income during the period. Cash Dividend Declared At its January 2007 Board meeting, the Board of Directors approved the regular quarterly cash dividend of $0.18 per share of common stock. The dividend is payable on March 7, 2007 to stockholders of record on February 12, 2007. Forward-Looking Statements forward-looking statement A projected financial statement based on management expectations. A forward-looking statement involves risks with regard to the accuracy of assumptions underlying the projections. This release, in particular the Chairman and Chief Executive Officer's remarks, contains statements about our future results that may be considered "forward-looking statements" under the Private Securities Litigation Reform Act The Private Securities Litigation Reform Act of 1995 (PSLRA) implemented several significant substantive changes affecting certain cases brought under the federal securities laws, including changes related to pleading, discovery, liability, class representation and awards fees and 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 United States, officially United States of America, republic (2005 est. pop. 295,734,000), 3,539,227 sq mi (9,166,598 sq km), North America. The United States is the world's third largest country in population and the fourth largest country in area. 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; (7) changes in capital requirement or other criteria of rating agencies; (8) changes in accounting principles or practices that may impact the Company's reported financial results; (9) inadequacy of reserves established for losses and loss adjustment expenses; (10) default of one or more of the Company's reinsurers; (11) market spreads and pricing on insured pooled debt obligations and other derivative products insured or issued by the Company; (12) prepayment speeds on insured asset-backed securities and other factors that may influence the amount of installment premiums paid to the Company; and (13) 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, except as required by law. ******************** Ambac Financial Group, Inc., headquartered in New York City New York City: see New York, city. New York City City (pop., 2000: 8,008,278), southeastern New York, at the mouth of the Hudson River. The largest city in the U.S. , 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 An operating subsidiary is a business term frequently used within the United States railroad industry. In the case of a railroad, it refers to a company that is a subsidiary but operates with its own identity and rolling stock. , Ambac Assurance Corporation Ambac Assurance Corporation A subsidiary of publicly traded Ambac Financial Group that provides financial guarantees for municipal borrowers and for asset-backed and structured issues. , a leading guarantor guarantor n. a person or entity that agrees to be responsible for another's debt or performance under a contract, if the other fails to pay or perform. (See: guarantee) GUARANTOR, contracts. He who makes a guaranty. 2. of public finance and structured finance obligations, has earned triple-A ratings, the highest ratings available from Moody's Investors Service Moody's Investors Service A leading global credit rating, research and risk analysis firm. Moody's Investors Service A leading firm engaged in credit rating, risk analysis, and research of fixed-income securities and their issuers. , Inc., Standard & Poor's Ratings Services Ratings Service A company, such as Moody's or Standard & Poor's, that rates various debt and preferred stock issues for safety of payment of principal, interest, or dividends. and Fitch, Inc. Ambac Financial Group, Inc. common stock is listed on the New York Stock Exchange New York Stock Exchange (NYSE) World's largest marketplace for securities. The exchange began as an informal meeting of 24 men in 1792 on what is now Wall Street in New York City. (ticker symbol Ticker Symbol An arrangement of characters (usually letters) representing a particular security listed on an exchange or otherwise traded publicly. When a company issues securities to the public marketplace, it selects an available ticker symbol for its securities which investors ABK). ******************** Footnotes (1) Credit enhancement production, which is not promulgated prom·ul·gate tr.v. prom·ul·gat·ed, prom·ul·gat·ing, prom·ul·gates 1. To make known (a decree, for example) by public declaration; announce officially. See Synonyms at announce. 2. under GAAP, is used by management, equity analysts and investors as an indication of new business production in the period. Credit enhancement production, which Ambac reports as analytical data, is defined as gross (direct and assumed) up-front premiums plus the present value of estimated installment premiums on insurance policies and structured credit derivatives issued in the period. The discount rate used to measure the present value of estimated installment premiums was 5.4% and 7.0% during the fourth quarter of 2006 and 2005, respectively. The definition of credit enhancement production used by Ambac may differ from definitions of credit enhancement production (or similar terms) used by other public holding companies of financial guarantors. The following table reconciles credit enhancement production to gross premiums written calculated in accordance with GAAP: [TABLE OMITTED] (2) Operating earnings Operating Earnings Profits after subtracting expenses such as marketing, cost of goods sold, administration and general operating costs from revenue. Notes: Tax and interest expenses are not subtracted - operating earnings are synonymous with EBIT (earnings before and core earnings are not substitutes for net income computed in accordance with GAAP, but are useful measures of performance used by management, equity analysts and investors. Operating earnings measures income from operations excluding the impact of investment portfolio realized gains and losses, mark-to-market gains and losses from certain non-trading derivative instruments Derivative instruments Contracts such as options and futures whose price is derived from the price of an underlying financial asset. and certain other items. Core earnings further exclude the impact of refundings, calls and other accelerations. 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. [TABLE OMITTED] [TABLE OMITTED] [TABLE OMITTED] |
|
||||||||||||||||
Printer friendly
Cite/link
Email
Feedback
Reader Opinion