FSA HOLDINGS' PV PREMIUM ORIGINATIONS UP 68% IN SECOND QUARTER; SIX-MONTH EARNINGS ROSE 46% ADJUSTED BOOK VALUE GREW AT 9.5% ANNUALIZED RATE.NEW YORK--(BUSINESS WIRE)--July 17, 1996--Financial Security Assurance Holdings Ltd. (FSA FSA Financial Services Authority FSA Food Standards Agency (UK) FSA Farm Service Agency (USDA) FSA Financial Services Agency (Japan) Holdings, or the Company), the holding company for bond insurer An individual or company who, through a contractual agreement, undertakes to compensate specified losses, liability, or damages incurred by another individual. An insurer is frequently an insurance company and is also known as an underwriter. Financial Security Assurance Inc. (FSA), today announced that, in the six months ended June June: see month. 30, 1996, its adjusted book value rose $1.29 per share to $32.45 reflecting 9.5% annualized annualized Of or relating to a variable that has been mathematically converted to a yearly rate. Inflation and interest rates are generally annualized since it is on this basis that these two variables are ordinarily stated and compared. growth, including dividends, since year-end year-end also year·end n. The end of a year. adj. Occurring or done at the end of the year: a year-end audit. Noun 1. 1995. Strong growth in core business originations and earnings mitigated mit·i·gate v. mit·i·gat·ed, mit·i·gat·ing, mit·i·gates v.tr. To moderate (a quality or condition) in force or intensity; alleviate. See Synonyms at relieve. v.intr. To become milder. a decline in the market value of the investment portfolio caused by a steep increase in interest rates. From insurance operations alone, adjusted book value per share grew at an annualized rate of 15.1%, including dividends, driven by the addition of $117.3 million in present value (PV) premiums originated in the six-month period. FSA management views adjusted book value per share (book value plus the after-tax af·ter-tax also af·ter·tax adj. Relating to or being that which remains after payment, especially of income taxes: after-tax profits. present value of all deferred premium income, less deferred expenses) as an appropriate proxy for the intrinsic value Intrinsic Value 1. The value of a company or an asset based on an underlying perception of the value. 2. For call options, this is the difference between the underlying stock's price and the strike price. of the Company. Robert Robert, Henry Martyn 1837-1923. American army engineer and parliamentary authority. He designed the defenses for Washington, D.C., during the Civil War and later wrote Robert's Rules of Order (1876). Noun 1. P. Cochran, president and chief executive officer of FSA, said, "FSA has turned in a very solid first half performance in both its core businesses. In the municipal area, our performance was augmented by the strong contribution of our San Francisco-based western regional office. In the asset-backed business, where FSA is a major market participant The term market participant is used in United States constitutional law to describe a U.S. State which is acting as a producer or supplier of a marketable good or service. When a state is acting in such a role, it may permissibly discriminate against non-residents. , the upward trend in originations seen in the first quarter continued." Net income for the second quarter of 1996 was $18.8 million, or $0.61 per share, compared with $15.5 million, or $0.59 per share, for the same period in 1995. Year-to-date Year-to-date (YTD) The period beginning at the start of the calendar year up to the current date. earnings were $1.23 per share, compared with $1.01 for the first six months of 1995. Earnings results were positively affected by the Capital Guaranty As a verb, to agree to be responsible for the payment of another's debt or the performance of another's duty, liability, or obligation if that person does not perform as he or she is legally obligated to do; to assume the responsibility of a guarantor; to warrant. merger, which increased the size of the insured portfolio, created economies of scale, and allowed for greater leveraging of resources. Capital Guaranty Insurance Company (now Financial Security Assurance of Maryland Maryland (mâr`ələnd), one of the Middle Atlantic states of the United States. It is bounded by Delaware and the Atlantic Ocean (E), the District of Columbia (S), Virginia and West Virginia (S, W), and Pennsylvania (N). Inc.) became a subsidiary of FSA in December December: see month. 1995. NEW BUSINESS PRODUCTION In the second quarter of 1996, FSA insured bonds Insured bond A municipal bond backed both by the credit of the municipal issuer and by commercial insurance policies. insured bond A municipal debt obligation for which interest and principal are guaranteed by a private insurance company. totaling $7.4 billion, a 93.0% increase over the same period in 1995, bringing year-to-date par insured up 63.2% to $12.8 billion. The second quarter and first half asset-backed components rose 68.7% and 36.7%, respectively, to $4.4 billion and $7.5 billion. FSA insured $3.0 billion and $5.3 billion par of municipal obligations with closing dates in the second quarter and first half of 1996, respectively. These represent increases of 145.0% and 124.9% over the prior-year comparable results. Compared with the combined FSA and Capital Guaranty first half production in 1995, FSA's municipal par insured increased 73.9% with respect to U.S. new issues and 29.8% when secondary-market and international transactions are included. FSA insured $4.9 billion of U.S. municipal new issues in the first half of 1996, or approximately 12% of the insured market. The present value of gross premiums originated (which includes the present value of installment premiums) in the second quarter of 1996 was $55.9 million, 68.3% higher than in the second quarter of 1995. Helped by the additional 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. ability created by the merger, municipal PV premiums reached $27.1 million for the second quarter of 1996, an increase of 54.8% over the result in the second quarter of 1995. The asset-backed portion of second quarter PV premiums grew 83.3%, to $28.8 million. For the first half of 1996, the present value of gross premiums originated was $117.3 million, consisting of $46.9 million of municipal PV premiums (up 40.6%) and $70.4 million of asset-backed PV premiums (up 71.8%). "These are excellent results," stated Mr. Cochran, "and we were able to achieve them without sacrificing economics or credit quality. In fact, we are particularly pleased that the value of this discipline was recognized in Standard & Poor's recent confirmation of FSA's AAA AAA: see American Automobile Association. (Triple A) A common single-cell battery used in a myriad of electronic devices of all variety. Like its double A (AA) cousin, it provides 1.5 volts of DC power. When used in series, the voltage is multiplied. rating." Standard & Poor's published the confirmation and a rating analysis of FSA in its Bond Insurance CreditReview released June 24, 1996. ANALYSIS OF NET INCOME Second quarter core net income, which excludes refundings as well as realized capital gains or losses capital gains or losses n. particularly when calculating the tax liability of an individual or business, this is the difference between the original cost plus the cost of capital improvements, excluding maintenance, called "basis" and the sales price. , was $18.7 million, 38.4% higher than in the second quarter of 1995. This reflected a $9.0 million increase in total core revenues while total core 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. increased only $2.0 million. On a per share basis, second quarter core net income rose 17.3% to $0.61 per share. First half core net income of $36.3 million was 37.4% higher than in 1995. Second quarter operating net income (which excludes the impact of capital gains or losses) was $18.8 million, or $0.61 per share, in 1996 and $14.1 million, or $0.54 per share, in 1995. The increase in the quarter's operating net income relative to the prior year was due to an increase in core net income of $0.09 per share offset by a lower contribution from refundings of $0.02 per share. First half operating net income was $1.20 per share, up 10.9% compared with the first half of 1995. Of the $18.8 million of net income for the second quarter, the contribution from refundings totaled $0.1 million. There were essentially no capital gains or losses in the second quarter, while there were $1.3 million of capital gains in second quarter 1995. Of the $38.3 million of net income for the first half, the contributions from refundings and capital gains were each $1.0 million, or $0.03 per share. Core net premiums earned for the second quarter were $19.6 million, 38.8% higher than FSA's result in the same period of 1995 and 18.5% over the combined results of FSA and Capital Guaranty in that period. Refundings and prepayments Prepayments Payments made in excess of scheduled mortgage principal repayments. in the second quarter of 1996 were $0.13 million and contributed $0.06 million to operating net income in the second quarter of 1996, down substantially from the $1.2 million of refundings and prepayments and $0.6 million of contribution in the second quarter of the previous year. Total second quarter net premiums earned, including refundings, totaled $19.8 million, a 28.8% increase over FSA's result in the second quarter of 1995 and 8.7% higher than the combined net premiums earned by FSA and Capital Guaranty in that period. First half net premiums earned totaled $42.5 million, compared with $30.5 million earned by FSA in last year's first half. Net investment income for the second quarter of 1996 was $16.0 million, an increase of 29.8% over the second quarter 1995 result, primarily due to the additional invested assets acquired in the merger. Capital losses were $0.02 million in the second quarter of 1996, compared with a capital gain of $2.1 million in the second quarter of 1995. The Company's effective tax rate on investment income (excluding the effects of capital gains and losses) was 19.6% for the second quarter of 1996, down from 23.0% for the second quarter of 1995. The investment portfolio had an after-tax total return of 0.73% during the second quarter and 0.18% during the first half. Policy acquisition and other operating expenses (total operating expenses) for the second quarter of 1996 were $8.5 million, up from $6.7 million in the second quarter of 1995. Total operating expenses rose due to higher amortization of deferred acquisition costs (DAC See D/A converter and discretionary access control. DAC - Digital to Analog Converter ) and increased accruals Accruals Accounts on a balance sheet that represent liabilities and non-cash-based assets used in accrual-based accounting. These accounts include, among many others, accounts payable, accounts receivable, goodwill, future tax liability and future interest expense. for performance plan payouts. For the same reasons, total operating expenses excluding the effects of refundings (core operating expenses) rose to $8.4 million, or $2.0 million higher than in last year's second quarter. The core operating expense Operating Expense The essential things that a company must purchase in order to maintain business. Notes: For example, the payment of employees wages are an operating expense. Also known as OPEX. ratio declined 2.5 percentage points, largely because of efficiencies brought about by the merger. For the first half of 1996, total operating expenses were $20.1 million, compared with $13.5 million for the first half of 1995, and core operating expenses were $17.2 million, compared with $12.9 million for the first half of 1995. Losses and loss adjustment expenses were $1.5 million and $3.2 million in the second quarter and first half, respectively, of 1996 and $1.6 million and $3.3 million in the second quarter and first half, respectively, of 1995, exclusively reflecting additions to the general reserve in both the second quarter and first half of both years. At June 30, 1996, FSA's unallocated general reserve totaled $34.7 million. FSA Holdings, through its wholly owned subsidiary Wholly Owned Subsidiary A subsidiary whose parent company owns 100% of its common stock. Notes: In other words, the parent company owns the company outright and there are no minority owners. , FSA, guarantees scheduled payments of principal and interest of municipal bonds and 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. , including residential mortgage-backed securities Residential mortgage-backed securities (RMBS) are a type of bond commonly issued in American security markets. They are a type of Mortgage-backed security which are backed by mortgages on residential rather than commercial real estate. . FSA's claims-paying ability is rated Triple-A by 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. , Nippon Nippon (nĭp`ŏn, nĭpŏn`), name for Japan, derived from Dai Nippon, meaning Great Japan. The expression comes from the Chinese ideograph for the place where the sun comes from, or Land of the Rising Sun. Investors Service Inc., and Standard & Poor's (Australia Australia (ôstrāl`yə), smallest continent, between the Indian and Pacific oceans. With the island state of Tasmania to the south, the continent makes up the Commonwealth of Australia, a federal parliamentary state (2005 est. pop. ) Pty. Ltd. Headquartered in 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 , FSA has offices in San Francisco San Francisco (săn frănsĭs`kō), city (1990 pop. 723,959), coextensive with San Francisco co., W Calif., on the tip of a peninsula between the Pacific Ocean and San Francisco Bay, which are connected by the strait known as the Golden and Dallas Dallas, city (1990 pop. 1,006,877), seat of Dallas co., N Tex., on the Trinity River near the junction of its three forks; inc. 1871. The second largest Texas city, after Houston, and the eighth largest U.S. . It also has a London-based U.K. subsidiary, Financial Security Assurance (U.K.) Limited, and representative offices in Madrid Madrid (mədrĭd`, Span. mäthhrēth`), city (1990 pop. 3,120,732), capital of Spain and of Madrid prov., central Spain, and the focus of its own autonomous region, on the Manzanares River. , Paris, and Sydney Sydney, city, Australia Sydney, city (1991 pop. 3,097,956), capital of New South Wales, SE Australia, surrounding Port Jackson inlet on the Pacific Ocean. Sydney is Australia's largest city, chief port, and main cultural and industrial center. . -0-
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands, except per share data)
June 30, December 31,
ASSETS 1996 1995
Bonds, at market value (amortized cost of $1,066,444 and $1,027,514) $1,057,613 $1,058,076 Stocks, at market value (amortized cost of $6,514) 6,581 Short-term investments 75,245 52,666
Total investments 1,139,439 1,110,742
Cash 7,432 1,118
Deferred acquisition costs 133,950 132,951
Prepaid reinsurance premiums 144,881 133,548
Reinsurance recoverable on unpaid losses 35,624 61,532 Receivable for securities sold 15,871 2,326 Other assets 39,099 48,045
TOTAL ASSETS $1,516,296 $1,490,262
LIABILITIES AND SHAREHOLDERS' EQUITY Deferred premium revenue $ 496,061 $ 463,897 Losses and loss adjustment expenses 79,501 111,759 Deferred federal income taxes 26,038 41,936 Ceded reinsurance balances payable 14,267 13,664 Payable for securities purchased 78,646 9,516 Notes payable 30,000 30,000 Accrued expenses and other liabilities 31,783 41,543
TOTAL LIABILITIES 756,296 712,315
Preferred stock (3,000,000 shares authorized; 2,000,000 issued and outstanding; par value of $.01 per share) 20 20 Common stock (50,000,000 shares authorized; 32,276,301 issued; par value of $.01 per share) 323 323 Additional paid-in capital - preferred 680 680 Additional paid-in capital - common 695,152 696,253 Unrealized gain (loss) on investments (net of deferred income tax (benefit) provision of ($3,067) and $10,731) (5,696) 19,931 Accumulated earnings 105,777 72,410 Deferred equity compensation 14,817 6,504 Less treasury stock at cost (2,022,031 and 774,276 shares held) (51,073) (18,174) TOTAL SHAREHOLDERS' EQUITY 760,000 777,947 TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $1,516,296 $1,490,262 -0-
FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands, except per share data)
Three Months Ended Six Months Ended
June 30 June 30
1996 1995 1996 1995
Revenues:
Net premiums written (net of premiums ceded of $14,035, $8,856, $32,476 and $16,092) $30,726 $20,792 $64,865 $40,349 Decrease (increase) in deferred premium revenue (10,976) (5,462) (22,381) (9,804) Premiums earned (net of premiums ceded of $8,188, $8,533, $21,167 and $16,426) 19,750 15,330 42,484 30,545 Net investment income 15,986 12,311 31,668 24,665 Net realized gains (losses) (22) 2,061 1,512 (2,732) Other income 43 209 105 406
TOTAL REVENUES 35,757 29,911 75,769 52,884
Expenses: Losses and loss adjustment expenses (net of reinsurance recoveries of $571, $1,017, $1,131 and $2,016) 1,530 1,605 3,155 3,305 Interest expense 542 1,083 57 Policy acquisition costs 4,965 3,596 12,620 7,197 Other operating expenses 3,509 3,058 7,466 6,259
TOTAL EXPENSES 10,546 8,259 24,324 16,818
INCOME BEFORE INCOME TAXES 25,211 21,652 51,445 36,066 Provision for income taxes 6,463 6,168 13,153 9,777
NET INCOME $18,748 $15,484 $38,292 $26,289
Weighted average common
shares outstanding 30,758 25,887 31,074 25,940
Earnings per common share $ 0.61 $ 0.59 $ 1.23 $ 1.01
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FINANCIAL SECURITY ASSURANCE HOLDINGS LTD.
AND SUBSIDIARIES
Net Income Per Common Share
Three Months Six Months
Ended Ended
June 30 June 30
1996 1995 1996 1995
Core net income $0.61 $0.52 $1.17 $1.02 Refundings, calls or other accelerations - 0.02 0.03 0.06 Operating net income 0.61 0.54 1.20 1.08 Realized capital gains (losses) - 0.05 0.03 (0.07) Net income $0.61 $0.59 $1.23 $1.01
Components of Adjusted Book Value Per Common Share
June 30, December 31,
1996 1995
Book value $25.10 $24.67
After-tax value of:
Net deferred premium revenue,
net of DAC 4.66 4.07
Present value of installment
premiums 2.69 2.42
Adjusted book value $32.45 $31.16
FINANCIAL SECURITY ASSURANCE INC.
AND SUBSIDIARIES
Selected Statutory Data
June 30, 1996 and December 31, 1995
(Dollars in thousands, except ratios)
June 30, December 31,
1996 1995
Qualified statutory capital $ 661,732 $ 644,653 Unearned premium reserve 399,769 376,597 Loss and loss adjustment expense reserves 9,170 18,429 Policyholders' capital and reserves $1,070,671 $1,039,679 Net insurance in force $85,271,342 $75,360,277 Policyholders' leverage ratio (1) 129:1 117:1 (1) Policyholders' leverage ratio is net insurance in force divided by qualified statutory capital. CONTACT: PRESS RELATIONS BETSY Betsy is an English name for females, used as a nickname for Elizabeth. It is also a surname. Famous uses or users of Betsy include:
(212) 339-3424 or INVESTOR RELATIONS Investor relations The process by which the corporation communicates with its investors. PETER HOEY (212) 339-3483 |
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