UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended September 30, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-10777 AMBAC FINANCIAL GROUP, INC. | --- | --- | --- | |-------------------------------------------------------------|----------------------------------------------|--------- ...

Financial Data and Key Metrics Changes - Ambac reported a net loss of $35 million or $0.77 per diluted share for Q2 2020, compared to a net loss of $280 million or $6.07 per diluted share in Q1 2020 [8][18] - Adjusted loss for Q2 was $24 million or $0.52 per diluted share, down from an adjusted loss of $265 million or $5.75 per diluted share in Q1 [19] - Book value per share increased by $1.46 to $23.34, while adjusted book value decreased to $21.06 from $22.11 [23] Business Line Data and Key Metrics Changes - Premiums earned were $11 million in Q2, slightly up from just over $10 million in Q1 [20] - Investment income, excluding realized gains, was $52 million in Q2, a significant recovery from a net loss of $21 million in Q1 [20] - Loss and loss expenses incurred were $16 million in Q2, down from $117 million in Q1, with public finance sector losses driving the incurred losses [21][22] Market Data and Key Metrics Changes - Net par exposure was $35.3 billion at June 30, 2020, down 3% from March 31, 2020 [10] - Watch list and adversely classified credits were $14 billion at June 30, 2020, up 1% from Q1 [10] Company Strategy and Development Direction - The company remains focused on derisking its watch list and adversely classified credits, particularly in the public finance sector [12] - Ambac is exploring new market opportunities that could lead to future value creation for shareholders [26] Management's Comments on Operating Environment and Future Outlook - Management acknowledged the uncertainty regarding the impact of COVID-19 on municipal exposures and emphasized the need for ongoing monitoring [9] - The company believes its financial guarantee business is well-positioned to manage potential challenges due to its disciplined risk management strategy [24][25] Other Important Information - Ambac facilitated a reinsurance transaction related to its remaining exposure to the New Jersey Turnpike and commuted a significant portion of its exposure to PG&E [12] - The company is implementing a specialty insurance new business strategy, with the approval of Everspan Insurance Company as a key component [16][17] Q&A Session Summary Question: Impact of low interest rates on Ambac - Management discussed the benefits of lower interest rates, including opportunities for refinancing municipal credits and increased excess spread in structured finance portfolios [29][30] Question: Repurchase of Ambac liabilities - The company confirmed it bought back approximately $150 million in Ambac-wrapped securities during the quarter [35] Question: Cash and investments at AFG - Management clarified that the reported cash and investments of $481 million at AFG is a net number, with no significant liabilities other than working capital payables [37]

UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q ☒ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Quarterly Period Ended June 30, 2020 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Commission File Number: 1-10777 AMBAC FINANCIAL GROUP INC Exact name of Registrant as specified in its charter) Delaware 13-3621676 | --- | --- | --- | |--------------------------------------------------- ...

[PART I. FINANCIAL INFORMATION](index=3&type=section&id=PART%20I.%20FINANCIAL%20INFORMATION) This section details Ambac's unaudited financial statements, management's analysis, market risk, and internal controls [Item 1. Unaudited Financial Statements](index=3&type=section&id=Item%201.%20Unaudited%20Financial%20Statements) This section provides Ambac's unaudited consolidated financial statements for Q1 2020, along with comprehensive accompanying notes [Consolidated Balance Sheets](index=3&type=section&id=Consolidated%20Balance%20Sheets) As of March 31, 2020, total assets decreased to **$12,777 million** from **$13,320 million**, with stockholders' equity significantly reduced to **$1,062 million** from **$1,536 million** Consolidated Balance Sheet Summary (in millions) | Account | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | **Total Assets** | **$12,777** | **$13,320** | | Total Investments | $3,400 | $3,792 | | Subrogation recoverable | $2,192 | $2,029 | | VIE Assets | $5,925 | $6,286 | | **Total Liabilities** | **$11,716** | **$11,783** | | Loss and loss expense reserves | $1,797 | $1,548 | | Long-term debt | $2,760 | $2,822 | | VIE Liabilities | $5,873 | $6,212 | | **Total Stockholders' Equity** | **$1,062** | **$1,536** | [Consolidated Statements of Total Comprehensive Income (Loss)](index=5&type=section&id=Consolidated%20Statements%20of%20Total%20Comprehensive%20Income%20%28Loss%29) Ambac reported a **net loss of $280 million** for Q1 2020, significantly higher than the **$43 million loss** in Q1 2019, resulting in a **total comprehensive loss of $470 million** Q1 2020 Statement of Total Comprehensive Income (Loss) (in millions, except per share data) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Total Revenues | $(70) | $100 | | Total Expenses | $217 | $142 | | Pre-tax income (loss) | $(287) | $(41) | | **Net income (loss) attributable to common stockholders** | **$(280)** | **$(43)** | | **Total comprehensive income (loss)** | **$(470)** | **$28** | | **Diluted EPS** | **$(6.07)** | **$(0.94)** | [Notes to Unaudited Consolidated Financial Statements](index=8&type=section&id=Notes%20to%20Unaudited%20Consolidated%20Financial%20Statements) These notes detail Ambac's accounting policies, business strategy as a run-off insurer, new accounting standards, and significant legal proceedings - The company's primary goal is to maximize shareholder value through active runoff of Ambac Assurance, rationalizing capital structures, loss recovery via litigation, and evaluating new business opportunities, subject to significant risks including the COVID-19 pandemic[13](index=13&type=chunk) - Effective January 1, 2020, the company adopted ASU 2016-13 (CECL), changing the methodology for measuring credit losses on financial instruments, with an initial adoption adjustment not material to retained earnings[24](index=24&type=chunk)[25](index=25&type=chunk) - Ambac is involved in significant litigation, including adversary proceedings by the Financial Oversight and Management Board for Puerto Rico and its own lawsuits to recover losses from Puerto Rico bond underwriters and RMBS transaction sponsors[173](index=173&type=chunk)[174](index=174&type=chunk)[186](index=186&type=chunk)[199](index=199&type=chunk) [Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations](index=48&type=section&id=Item%202.%20Management%27s%20Discussion%20and%20Analysis%20of%20Financial%20Condition%20and%20Results%20of%20Operations) Management discusses Q1 2020 financial performance, highlighting the COVID-19 pandemic's impact on results, the financial guarantee portfolio, liquidity, and non-GAAP measures [Executive Summary](index=49&type=section&id=Executive%20Summary) This summary outlines Ambac's value maximization goal, highlighting the COVID-19 pandemic's adverse impact on credit risk, loss reserves, and investment returns - The COVID-19 pandemic has significantly impacted Ambac's financial position and results, increasing credit risk in the insured and investment portfolios, leading to higher loss reserves and a negative total return on the investment portfolio of approximately **(4.4)%** in Q1 2020[217](index=217&type=chunk)[219](index=219&type=chunk)[224](index=224&type=chunk) - Adversely classified credits (ACC) net par exposure increased by **11%** to **$8.38 billion**, primarily due to credits impacted by COVID-19, while watch list credits decreased by **19%** to **$5.44 billion**[214](index=214&type=chunk)[215](index=215&type=chunk) - As of March 31, 2020, the net assets of the holding company, AFG, were **$482 million**, including **$317 million** in cash and short-term investments[228](index=228&type=chunk)[229](index=229&type=chunk) [Financial Guarantees in Force](index=52&type=section&id=Financial%20Guarantees%20in%20Force) Total net par outstanding decreased to **$36.2 billion**, with the portfolio concentrated and significantly stressed by COVID-19, particularly in Puerto Rico Net Par Outstanding by Market (in millions) | Market | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | Public Finance | $17,093 | $17,653 | | Structured Finance | $7,139 | $7,508 | | International Finance | $11,954 | $12,857 | | **Total** | **$36,186** | **$38,018** | - The top ten insured exposures represent **$7.3 billion**, or **20.1%** of total net par outstanding, with several downgraded due to COVID-19 impacts[236](index=236&type=chunk)[237](index=237&type=chunk) - Ambac's exposure to Puerto Rico was **$1.105 billion** in net par as of March 31, 2020, with ongoing restructuring and COVID-19 creating substantial uncertainty and risk of material losses[246](index=246&type=chunk)[250](index=250&type=chunk)[255](index=255&type=chunk) [Results of Operations](index=57&type=section&id=Results%20of%20Operations) Ambac reported a **net loss of $280 million** in Q1 2020, driven by decreased investment income, increased derivative losses, and higher loss expenses due to COVID-19 Summary of Financial Results (in millions) | Line Item | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net premiums earned | $10 | $28 | | Net investment income (loss) | $(21) | $55 | | Net gains (losses) on derivative contracts | $(70) | $(16) | | Losses and loss expenses (benefit) | $117 | $12 | | **Net income (loss) attributable to common stockholders** | **$(280)** | **$(43)** | - Net premiums earned decreased to **$10 million** from **$28 million**, due to portfolio runoff and the absence of large accelerated earnings like the **$12 million** from the COFINA restructuring in Q1 2019[275](index=275&type=chunk)[276](index=276&type=chunk) - Losses and loss expenses increased to **$117 million** from **$12 million**, driven by higher projected losses in domestic public finance due to lower discount rates and COVID-19 impacts, partially offset by favorable RMBS development[290](index=290&type=chunk) [Liquidity and Capital Resources](index=62&type=section&id=Liquidity%20and%20Capital%20Resources) AFG's liquidity was **$482 million**, impacted by COVID-19 reducing asset values and increasing collateral, while OCI declined Ambac Assurance's surplus note payment - AFG's liquidity at the holding company level was **$482 million** as of March 31, 2020, with dividends from Ambac Assurance highly unlikely in the foreseeable future[300](index=300&type=chunk)[304](index=304&type=chunk) - In April 2020, the Office of the Commissioner of Insurance (OCI) declined Ambac Assurance's request to pay principal and accrued interest on surplus notes maturing June 7, 2020, extending the payment date until OCI approval[298](index=298&type=chunk)[308](index=308&type=chunk) - Collateral and margin posted by AFS for derivative contracts totaled a net amount of **$165 million** at March 31, 2020, an increase driven by market volatility[317](index=317&type=chunk) [Balance Sheet](index=64&type=section&id=Balance%20Sheet) Total assets decreased to **$12.8 billion** and stockholders' equity significantly fell to **$1.06 billion** due to comprehensive loss and investment portfolio declines - Total stockholders' equity decreased from **$1,536 million** at year-end 2019 to **$1,062 million** at March 31, 2020, primarily due to a Total Comprehensive Loss of **$470 million**[5](index=5&type=chunk)[321](index=321&type=chunk) - Loss and loss expense reserves, net of subrogation and before reinsurance, improved from a net liability of **$(482) million** to **$(395) million**, largely due to increased R&W subrogation recoveries related to lower discount rates[338](index=338&type=chunk) Gross Loss Reserves by Bond Type (in millions) | Bond Type | March 31, 2020 | December 31, 2019 | | :--- | :--- | :--- | | RMBS | $(1,468) | $(1,392) | | Domestic Public Finance | $783 | $627 | | Student Loans | $227 | $208 | | Ambac UK and Other | $8 | $3 | | **Total (excl. loss expenses)** | **$(450)** | **$(481)** | [Variability of Expected Losses and Recoveries](index=67&type=section&id=Variability%20of%20Expected%20Losses%20and%20Recoveries) Estimated loss reserves may be inadequate, with stress scenarios indicating potential increases of **$1.76 billion** for RMBS and **$1.22 billion** for public finance - A stress scenario for RMBS, assuming no realization of the **$1.74 billion** in recorded R&W subrogation recoveries, could increase loss reserves by approximately **$1,763 million**[346](index=346&type=chunk)[347](index=347&type=chunk) - For public finance credits, including Puerto Rico, a possible increase in loss reserves under a stress scenario is estimated to be approximately **$1,220 million**, reflecting COVID-19 risks and adverse Puerto Rico restructuring outcomes[359](index=359&type=chunk) - For student loan exposures, a stress scenario could increase loss reserves by approximately **$35 million**, with an additional **$20 million** increase for every **0.50%** rise in interest rates[361](index=361&type=chunk) [Non-GAAP Financial Measures](index=71&type=section&id=Non-GAAP%20Financial%20Measures) Ambac reports non-GAAP Adjusted Earnings and Adjusted Book Value, with Q1 2020 Adjusted Loss at **$265 million** and Adjusted Book Value at **$1.01 billion** Reconciliation to Adjusted Earnings (Loss) (in millions) | Metric | Q1 2020 | Q1 2019 | | :--- | :--- | :--- | | Net income (loss) attributable to common stockholders (GAAP) | $(280) | $(43) | | Adjustments (Intangible amortization, etc.) | $15 | $34 | | **Adjusted earnings (loss) (Non-GAAP)** | **$(265)** | **$(9)** | Reconciliation to Adjusted Book Value (in millions) | Metric | March 31, 2020 | Dec 31, 2019 | | :--- | :--- | :--- | | Total stockholders' equity (GAAP) | $1,002 | $1,477 | | Adjustments | $9 | $(164) | | **Adjusted book value (Non-GAAP)** | **$1,012** | **$1,313** | [Item 3. Quantitative and Qualitative Disclosures About Market Risk](index=67&type=section&id=Item%203.%20Quantitative%20and%20Qualitative%20Disclosures%20About%20Market%20Risk) This section details Ambac's market risk exposures, including interest rate, credit spread, and foreign currency risks, with sensitivities impacted by COVID-19 volatility - The primary market risks are interest rate, credit spread, and foreign currency risk, with sensitivities changed due to the COVID-19 pandemic's impact on markets[384](index=384&type=chunk) - A **100 basis point** parallel rise in interest rates would result in an estimated net fair value loss of **$300 million** on the company's fixed income portfolio and derivative instruments[388](index=388&type=chunk) - A **50 basis point** widening of credit spreads would decrease the fair value of the fixed income investment portfolio by an estimated **$29 million** and increase net derivative liabilities by **$5 million**[390](index=390&type=chunk)[392](index=392&type=chunk) [Item 4. Controls and Procedures](index=68&type=section&id=Item%204.%20Controls%20and%20Procedures) Management concluded that disclosure controls and procedures were effective as of March 31, 2020, with no material changes to internal controls despite remote work - Management concluded that as of March 31, 2020, Ambac's disclosure controls and procedures were effective[393](index=393&type=chunk) - No material changes to internal control over financial reporting occurred in Q1 2020, and the transition to remote work due to COVID-19 has not significantly impacted these controls[394](index=394&type=chunk) [PART II. OTHER INFORMATION](index=68&type=section&id=PART%20II.%20OTHER%20INFORMATION) This section provides updates on legal proceedings, risk factors, equity sales, and required exhibits [Item 1. Legal Proceedings](index=68&type=section&id=Item%201.%20Legal%20Proceedings) This section refers to Note 11 for detailed information on legal proceedings, primarily involving Puerto Rico bonds and RMBS litigation - For information on legal proceedings, the report directs readers to Note 11 in Part I, Item 1 and Note 17 in the 2019 Annual Report on Form 10-K[395](index=395&type=chunk) [Item 1A. Risk Factors](index=69&type=section&id=Item%201A.%20Risk%20Factors) This section updates risk factors, emphasizing the material negative impact of catastrophic public health events like the COVID-19 pandemic on insured obligations - A new material risk factor has been identified related to catastrophic public health events like the COVID-19 pandemic[397](index=397&type=chunk)[398](index=398&type=chunk) - The economic disruptions from COVID-19 are adversely affecting issuers of public finance and structured finance obligations insured by Ambac, potentially resulting in material permanent losses[398](index=398&type=chunk) - The ultimate financial impact of the pandemic is highly uncertain and depends on factors like the crisis's duration, government support efficacy, and economic recovery pace[401](index=401&type=chunk)[402](index=402&type=chunk) [Item 2. Unregistered Sales of Equity Securities and Use of Proceeds](index=69&type=section&id=Item%202.%20Unregistered%20Sales%20of%20Equity%20Securities%20and%20Use%20of%20Proceeds) No unregistered equity sales occurred in Q1 2020, but the company repurchased **132,962 shares** for approximately **$2.7 million** to satisfy employee tax obligations Q1 2020 Share Repurchases | Period | Total Shares Purchased | Average Price Paid Per Share | | :--- | :--- | :--- | | January 2020 | 14,496 | $19.81 | | February 2020 | — | $— | | March 2020 | 118,466 | $20.02 | | **Total Q1 2020** | **132,962** | **$20.02** | - The share purchases were conducted to meet employee tax withholding obligations upon the settlement of restricted stock units and are not part of a formal stock repurchase program[404](index=404&type=chunk)[406](index=406&type=chunk) [Item 6. Exhibits](index=70&type=section&id=Item%206.%20Exhibits) This section lists exhibits filed with the Form 10-Q, including stock unit agreements and CEO/CFO certifications - Exhibits filed include forms of 2020 Restricted Stock Unit and Performance Stock Unit award agreements for executives[407](index=407&type=chunk) - Required CEO and CFO certifications under Rules 13a-14(a) and 15d-14(a) and Section 906 of the Sarbanes-Oxley Act are included as exhibits[407](index=407&type=chunk)

Financial Data and Key Metrics Changes - For the year ended December 31, 2019, Ambac reported a net loss of $216 million or negative $4.69 per diluted share, and adjusted earnings of $66 million or $1.44 per diluted share [5] - As of December 31, 2019, the book value was $1.5 billion or $32.41 per share, and adjusted book value was $1.3 billion or $28.83 per share [5][22] - In Q4 2019, Ambac reported a net loss of $110 million or $2.40 per diluted share compared to net income of $66 million or $1.41 per diluted share in Q3 2019 [16] - Adjusted loss for Q4 was $88 million or $1.91 per diluted share compared to adjusted earnings of $77 million or $1.63 per diluted share in Q3 2019 [16] Business Line Data and Key Metrics Changes - Premiums earned in Q4 were $20 million, up from $10 million in Q3, due to a reduction in the allowance for uncollectible premiums [17] - Investment income for Q4 was $42 million, down from $45 million in Q3, attributed to lower income from COFINA bond sales and AAC's investment in secured notes [17] - Loss and loss expenses incurred were $97 million in Q4, compared to $37 million in Q3, with RMBS losses of $40 million in Q4 compared to a benefit of $25 million in Q3 [19] Market Data and Key Metrics Changes - The insured portfolio decreased by 19% from $46.9 billion to $38 billion as of December 31, 2019, and adversely classified and watch list credits decreased by 28% from $19.9 billion to $14.3 billion [8] - Active derisking efforts accounted for 50% of the decrease in total net par and 65% of the decrease in adversely classified and watch list credits [8] Company Strategy and Development Direction - The company focused on derisking activities, including the execution of the COFINA Plan of Adjustment, which reduced its largest single risk related to Puerto Rico exposure [6] - Ambac expanded its use of reinsurance to reduce its insurance portfolio, ceding $1.2 billion of public finance par exposure [7] - The company is actively pursuing new business opportunities in sectors that align with its competencies, aiming for long-term shareholder value [14] Management's Comments on Operating Environment and Future Outlook - Management expressed confidence in the company's strategic priorities and the importance of derisking efforts in 2020 [8][15] - The management highlighted ongoing discussions with the Oversight Board regarding Puerto Rico and the need for productive negotiations to avoid litigation [11][34] - The company remains focused on reducing operating expenses and optimizing its capital structure [20] Other Important Information - The company reported a $142 million one-time gain from the SEC settlement with Citigroup, which contributed to deleveraging efforts [12] - Operating expenses for Q4 decreased to $23 million, driven by reductions in compensation-related expenses [20] Q&A Session Summary Question: On the secured note side, what are the potential savings from the repayment? - The cash flow will circulate and pay down additional amounts, with an annualized basis reducing interest expense by about $12 million depending on LIBOR [26] Question: Are there opportunities to reduce debt across the structure? - The company will continue to look for opportunities to reduce the outstanding secured balance, subject to liquidity and capital allocation considerations [28] Question: Are there enhanced litigation-related expenses expected in the first half? - Additional litigation-related expenses were taken on both RMBS and Puerto Rico fronts, with reserves reevaluated at year-end [30] Question: What is the status of negotiations with the Oversight Board regarding Puerto Rico? - Ongoing discussions are taking place, but the current proposals from the Oversight Board do not facilitate good negotiations [34] Question: Can you provide insight into the Bank of America appeal process? - The appeals are related to initial decisions confirmed by Justice Sherwood, and the company is awaiting the outcome of the appeal [34] Question: What is the focus regarding potential acquisitions? - The company is looking at businesses that reflect core competencies in credit and insurance, with a disciplined approach to identifying attractive opportunities [39]

Table of Contents UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K ☒ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the Fiscal Year Ended December 31, 2019 ☐ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from to Commission File Number: 1-10777 AMBAC FINANCIAL GROUP INC (Exact name of Registrant as specified in its charter) | --- | --- | --- | |---------------------- ...

Ambac Financial Group, Inc. (NYSE:AMBC) Q3 2019 Earnings Conference Call November 8, 2019 8:30 AM ET Company Participants Lisa Kampf - MD, IR Claude LeBlanc - President, CEO & Director David Trick - EVP, CFO & Treasurer Conference Call Participants Giuliano Bologna - BTIG Operator Greetings, and welcome to the Ambac Financial Group, Inc. Third Quarter 2019 Earnings Call. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce your hosts, Ms. Lisa Kampf, ...