Ambac Announces Third Quarter 2016 Results

Net Income of $101.5 million or $2.22 per Diluted Share and Operating Earnings of $148.1 million or $3.23 per Diluted Share

Book Value per Share Increased 6.3% to $42.32 and Adjusted Book Value per Share Increased 7.3% to $32.12 at September 30, 2016 from June 30, 2016

Insured Portfolio Reduced by $8.0 billion, or 8.4%, to $86 billion

Operating Expenses Reduced 23%

Invested $287 million in Ambac Insured Securities

Board Authorized Additional $10 Million Warrant Repurchase

NEW YORK, Nov. 03, 2016 (GLOBE NEWSWIRE) -- Ambac Financial Group, Inc. (Nasdaq:AMBC) ("Ambac"), a holding company whose subsidiaries, including Ambac Assurance Corporation ("AAC"), provide financial guarantees and other financial services, today reported results for the three months ended September 30, 2016.

Commenting on Ambac's third quarter 2016 results, Nader Tavakoli, President and Chief Executive Officer, said, "We are pleased to report another excellent quarter. We continued to improve our claims paying ability at AAC, generated substantial income, and built significant additional book value for our shareholders. Net income per diluted share for the quarter was $2.22, an increase of 72%, and operating earnings per diluted share was $3.23, an increase of 27%, compared to the second quarter of 2016.  Book value and adjusted book value both increased substantially during the quarter to $42.32 per share and $32.12 per share, or by 6% and 7%, respectively.

Importantly, during the quarter we reduced our overall risk book by another $8.0 billion, or 8%, to $86.4 billion and invested $287 million in our insured securities. Additionally, our ongoing efforts to reduce expenses and optimize our operating platform contributed to a 23% reduction in operating expenses sequentially from $28.0 million to $21.5 million.  While we have more work to do, I'm pleased with the significant progress we've made in becoming a more effective, proactive and efficient risk, liability and asset manager, with a strong focus on our stated strategic priorities."
Ambac's Third Quarter 2016 Summary Results
            Better (Worse)
($ in millions, except per share data)   3Q16   2Q16   Amount   Percent
Net premiums earned   $ 53.2     $ 41.4     $ 11.8     29 %
Net investment income   90.9     70.8     20.1     28 %
Other than temporary impairment losses   (2.9 )   (7.4 )   4.5     61 %
Net realized investment gains   11.7     14.9     (3.2 )   (21 )%
Net change in fair value of credit derivatives   1.7     4.0     (2.3 )   (58 )%
Derivative products revenue   (14.5 )   (36.3 )   21.8     60 %
Net realized gains (losses) on extinguishment of debt       3.6     (3.6 )   (100 )%
Income (loss) on Variable Interest Entities ("VIEs")   2.1     9.0     (6.9 )   (77 )%
Loss and loss expenses (benefit)   (69.2 )   (52.5 )   16.7     32 %
Operating expenses   21.5     28.0     6.5     23 %
Interest expense   31.5     30.7     (0.8 )   (3 )%
Insurance intangible amortization   44.6     39.0     (5.6 )   (14 )%
Net income attributable to Common Stockholders   101.5     58.6     42.9     73 %
Net income per diluted share   $ 2.22     $ 1.29     $ 0.93     72 %
Operating earnings 1   148.1     115.0     33.1     29 %
Operating earnings per diluted share 1   $ 3.23     $ 2.54     $ 0.69     27 %
Ambac stockholders' equity   1,909.6     1,796.0     113.6     6 %
Ambac's stockholders' equity per share   $ 42.32     $ 39.80     $ 2.52     6 %
Adjusted book value 1   1,449.2     1,350.9     98.3     7 %
Adjusted book value per share 1   $ 32.12     $ 29.94     $ 2.18     7 %
                               
1  Non-GAAP Financial Data
 

Net Income and Operating Earnings Third quarter 2016 net income was $101.5 million, or $2.22 per diluted share, compared to net income of $58.6 million, or $1.29 per diluted share, for the second quarter of 2016.  Operating earnings in the third quarter of 2016 were $148.1 million, or $3.23 per diluted share, compared to $115.0 million, or $2.54 per diluted share in the second quarter of 2016.  Net income and operating earnings in the third quarter of 2016 were favorably impacted by accelerated premiums earned, net investment income, a loss and loss expenses incurred benefit, improvements to derivative product revenues and lower gross operating expenses.

Net Premiums Earned During the third quarter of 2016, net premiums earned were $53.2 million, compared to $41.4 million in the second quarter of 2016, including accelerations of $18.2 million and $5.1 million, respectively.  Normal premiums earned were adversely impacted by the runoff of the insured portfolio.  Accelerated premiums were positively impacted by an increase in public finance calls in the third quarter of 2016 of $3.1 billion net par compared to $1.3 billion net par in the second quarter of 2016.

The following table provides a summary of net premiums earned for the three month periods ended September 30, 2016 and June 30, 2016, respectively:
    Three Months Ended   Three Months Ended
($ in millions)   September 30, 2016   June 30, 2016
Public Finance   $ 20.8     $ 21.7  
Structured Finance   6.4     6.1  
International Finance   7.8     8.5  
Total normal premiums earned   35.0     36.3  
Accelerated earnings   18.2     5.1  
Total net premiums earned   $ 53.2     $ 41.4  
                 

Net Investment Income Net investment income for the third quarter of 2016 was $90.9 million, as compared to $70.8 million for the second quarter of 2016.  Financial Guarantee net investment income for the third quarter of 2016 was $19.8 million higher than the second quarter, driven primarily by an increase in income from AAC insured RMBS, asset-backed securities ("ABS"), and mark-to-market gains in the trading portfolio.  The increase in income from AAC insured RMBS and ABS was a function of improved cash flows.  Mark-to-market gains on invested assets classified as trading were $10.2 million in the third quarter of 2016, compared to $5.2 million in the second quarter of 2016.

Loss and Loss Expenses (Benefit), and Loss Reserves Loss and loss expenses for the third quarter of 2016 was a benefit of $69.2 million, as compared to a benefit of $52.5 million for the second quarter of 2016.

RMBS loss and loss expenses incurred were $3.8 million in the third quarter of 2016, including $42.8 million of interest expense on Deferred Amounts.  Third quarter 2016 RMBS incurred losses included a $38.7 million increase to the recorded estimate of representation and warranty ("R&W") subrogation recoveries and marginally improved loss experience muted by higher interest rates and higher loss adjustment expenses.  In the second quarter of 2016 the RMBS incurred benefit included $60.4 million of expected value due to the successful resolution of a dispute with regards to an Ambac insured RMBS transaction, $28.3 million associated with an increase in the recorded estimated valuation of R&W recoveries and a reduction in reserves primarily due to a decline in interest rates.

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