MBIA Inc. Reports Third Quarter 2012 Financial Results
MBIA Inc. Reports Third Quarter 2012 Financial Results
Highlights
* MBIA Inc.’s (the Company’s) Adjusted Book Value (ABV), a non-GAAP measure,
was $30.64 per share at September 30, 2012 compared with $31.23 per share
at June 30, 2012.
* MBIA Inc.’s adjusted pre-tax loss, a non-GAAP measure, was $118 million
for the third quarter of 2012 compared with an adjusted pre-tax loss of
$430 million for the third quarter of 2011.
* MBIA Inc. recorded net income available to common shareholders of $7
million, or $0.04 per share, for the third quarter of 2012, compared with
net income of $444 million, or $2.26 per share, for the third quarter of
2011.
Business Wire
ARMONK, N.Y. -- November 07, 2012
MBIA Inc. (NYSE: MBI) today reported Adjusted Book Value (ABV) per share (a
non-GAAP measure defined in the attached Explanation of Non-GAAP Financial
Measures) of $30.64 per share at September 30, 2012 compared with $31.23 per
share at June 30, 2012. Book value per share was $13.25 as of September 30,
2012.
MBIA Inc.’s adjusted pre-tax loss (a non-GAAP measure defined in the attached
Explanation of Non-GAAP Financial Measures) for the third quarter of 2012 was
$118 million compared with an adjusted pre-tax loss of $430 million for the
third quarter of 2011. The reduction in ABV and the adjusted pre-tax loss for
the three months ended September 30, 2012 were driven primarily by losses on
insured exposures. The lower adjusted pre-tax loss for the third quarter of
2012 compared with the third quarter of 2011 was primarily the result of
decreases in impairments on insured credit derivatives, insurance losses and
LAE, partially offset by a decrease in net gains related to unfavorable
changes in foreign exchange rates. ABV and adjusted pre-tax income (loss)
provide investors with additional views of the Company’s operating results
that management finds useful in measuring financial performance.
Net income available to common shareholders for the third quarter of 2012 was
$7 million, or $0.04 per share, compared with net income of $444 million, or
$2.26 per share, for the third quarter of 2011. The decline in net income was
primarily the result of pre-tax unrealized changes in the fair value of
insured derivatives. In the three months ended September 30, 2012, the Company
recorded a $33 million unrealized loss on insured credit derivatives compared
with a $776 million unrealized gain on insured credit derivatives in the
comparable period of 2011. The unrealized gain on insured credit derivatives
in the third quarter of 2011 resulted from a reduced market perception of MBIA
Insurance Corporation's (MBIA Corp.) credit quality and commutations of
insured exposures. The Company is required to adjust the values of its
derivative liabilities for the market's perception of its non-performance
risk. The decrease in the value of the derivative liabilities attributable to
the change in non-performance risk is reflected as an unrealized gain on the
income statement.
“Deterioration in the performance of commercial real estate exposures and
losses on insured RMBS transactions from ineligible mortgages drove our
adjusted pre-tax loss this quarter,” said MBIA Inc. President and Chief
Financial Officer Chuck Chaplin. “The path forward for our structured finance
subsidiary, MBIA Corp., requires that we collect our put-back recoverables,
principally from Countrywide and Bank of America, who continue to renege on
their contractual obligation to repurchase billions of dollars in ineligible
mortgages. Their default has put substantial pressure on MBIA Corp.’s
liquidity position. We remain confident that we will ultimately resolve our
litigation with Bank of America and collect the put-back recoverables, which
will improve MBIA Corp.’s stability.”
Year-to-Date Results
Net income available to common shareholders for the nine months ended
September 30, 2012 was $598 million, or $3.07 per share, compared with a net
loss of $693 million, or $3.50 per share, for the nine months ended September
30, 2011. The improvement in net income was primarily the result of pre-tax
unrealized changes in the fair value of insured derivatives. In the first nine
months of 2012, the Company recorded a $1.5 billion unrealized gain on insured
credit derivatives compared with an unrealized loss of $531 million in the
first nine months of 2011.
The adjusted pre-tax loss for the nine months ended September 30, 2012 was
$818 million compared with an adjusted pre-tax loss of $244 million in the
comparable period of 2011. The unfavorable change for the nine months ended
September 30, 2012 was primarily due to increased losses on insured credit
derivatives and financial guarantee policies, an increase in operating
expenses due to a significant increase in legal and litigation related costs,
and lower net investment income.
Third Quarter 2012 Segment Results
The following is a summary of pre-tax results by segment for the third quarter
of 2012:
$ in Structured
millions
U.S. Finance and Advisory Wind-down
Public
Finance International Services Corporate Segments Consolidated
3Q 2012
Pre-tax $ 164 $ (164 ) $ (2 ) $ 22 $ (77 ) $ (57 )
Income
(Loss)
3Q 2011
Pre-tax $ 157 $ 613 $ (1 ) $ (21 ) $ (9 ) $ 745
Income
(Loss)
Third Quarter 2012 Adjusted Pre-Tax Income
The following is a summary of adjusted pre-tax income (loss) for the third
quarter of 2012 where such results differ from pre-tax income calculated in
accordance with GAAP (a reconciliation of adjusted pre-tax income (loss) to
pre-tax income (loss) calculated in accordance with GAAP is attached).
Adjusted pre-tax income (loss) is equal to GAAP pre-tax income (loss) for the
U.S. Public Finance, Advisory Services, Corporate and Wind-down segments.
$ in millions Structured
Finance and
International Consolidated
3Q 2012 Adj. Pre-tax Income (Loss) $ (224) $ (118)
3Q 2011 Adj. Pre-tax Income (Loss) $ (556) $ (430)
U.S. Public Finance Insurance Results
The Company’s U.S. public finance insurance business is primarily conducted
through its National Public Finance Guarantee Corp. (National) subsidiary.
The U.S. public finance insurance segment recorded $164 million of pre-tax
income in the third quarter of 2012 compared with $157 million of pre-tax
income in the third quarter of 2011.
Total premiums earned in the U.S. public finance insurance segment were $134
million in the third quarter of 2012, down 9 percent from $147 million of
total premiums earned in the third quarter of 2011, reflecting a decrease in
scheduled premiums earned as the insured portfolio amortizes, partially offset
by an increase in refunding premiums earned.
Net investment income for the U.S. public finance insurance segment increased
6 percent to $56 million in the third quarter of 2012 from $53 million in the
comparable period of 2011, primarily due to a higher yield on the $1.6 billion
secured loan with MBIA Corp. relative to the previously invested assets.
Net gains on financial instruments at fair value and foreign exchange totaled
$22 million in the third quarter of 2012, compared with $6 million in the
third quarter of 2011. The increase resulted primarily from favorable market
conditions on asset sales made in connection with the ongoing management of
the U.S. public finance insurance segment’s investment portfolios.
The U.S. public finance insurance segment’s loss and loss adjustment expenses
were $4 million in the third quarter of 2012 compared with $10 million in the
third quarter of 2011.
Expenses associated with the amortization of deferred acquisition costs
totaled $26 million in the third quarter of 2012, compared with $22 million in
the third quarter of 2011.
Operating expenses were $20 million in the third quarter of 2012, compared
with $19 million in the comparable period of 2011.
As of September 30, 2012, National’s statutory capital was $3.1 billion and
its claims-paying resources (as described in the attached Explanation of
Non-GAAP Financial Measures) totaled $5.6 billion.
Structured Finance and International Insurance Results
The structured finance and international insurance business is primarily
conducted through MBIA Corp. and its subsidiaries.
The structured finance and international insurance segment had an adjusted
pre-tax loss of $224 million for the third quarter of 2012 compared with an
adjusted pre-tax loss of $556 million for the third quarter of 2011. Premiums
earned, net investment income, fees and reimbursements, and premiums and fees
on insured derivatives totaled $132 million in the third quarter of 2012. All
other line items in the aggregate, except losses and credit impairments (a
non-GAAP measure defined in the attached Explanation of Non-GAAP Financial
Measures) and loss-related expenses, had a net $104 million negative impact on
the adjusted pre-tax loss. Losses, credit impairments and loss-related
expenses on insured exposures totaled $252 million in the third quarter of
2012, compared with $631 million in the third quarter of 2011.
The following is a summary of MBIA Corp.’s insured portfolio economic loss
activity in the third quarter. Economic losses for a reporting period
represent the change in the Company’s estimate of the present value of
expected net future claims payments without regard to the manner in which they
are presented in the Company’s financial statements.
3Q 2012 Economic Loss (Benefit) Activity
Second-Lien
($ in RMBS ABS CDOs CMBS Other* Total
millions)
Change in
Expected $ 60 $ 21 $ 131 $ 49 $ 261
Payments
Change in
Expected (2 ) 5 (8 ) (4 ) (9 )
Salvage
Total Economic
Losses $ 58 $ 26 $ 123 $ 45 $ 252
(Benefit)
* includes first-lien RMBS
In the third quarter, the Company increased its expectations of future
payments on second-lien RMBS exposures by $60 million reflecting slower than
expected declines in early stage delinquencies and faster than expected
prepayment speeds within these transactions. Expected salvage increased by $2
million reflecting an increase in expected recoveries from contractual claims
related to ineligible mortgage loans improperly included in the insured
securitizations largely offset by a decrease in expected recoveries from
excess spread due to faster principal repayment on the underlying loans. The
Company’s estimates for expected recoveries related to “put-backs” of
ineligible mortgage loans totaled $3.2 billion as of September 30, 2012.
However, based on its assessment of the strength of its contract claims, the
Company continues to believe it is entitled to collect the full amount of its
cumulative incurred losses on these transactions, which totaled $5.0 billion
as of September 30, 2012. In addition, the Company believes it is entitled to
receive interest on any judgment it obtains in any litigation seeking to
collect these unpaid contract claims.
In the third quarter of 2012, the Company estimated $123 million of
incremental economic losses on certain insured transactions backed by pools of
CMBS. The increase reflects additional deterioration within some insured
transactions.
Third quarter economic losses on multi-sector ABS CDOs totaled $26 million,
driven primarily by higher than expected loan loss severities in first-lien
mortgage loan securitizations backing these transactions due to recoveries of
advances by the servicers of the underlying loans. Included in the $45 million
of “Other” economic loss activity were approximately $47 million of losses on
insured first-lien mortgage loan securitizations where loan loss severities
were also impacted by recoveries of servicer advances.
There were no material commutations of insured exposure during the third
quarter.
Portions of the $252 million of total economic losses are on policies subject
to insurance accounting while other amounts relate to losses on insured VIEs
or insured credit derivatives for which GAAP specifies different accounting.
The following is a summary of third quarter economic losses based on those
categories:
3Q 2012 Economic Losses (Benefit)
$ in millions
Change in Expected Payments $ 185
Change in Insurance Recoveries (18 )
Loss & LAE Expense on Policies Subject to Insurance Accounting $ 167
Credit Impairments on Insured VIEs $ 18
Credit Impairments on Insured Credit Derivatives $ 66
LAE on Insured Credit Derivatives 1
Credit Impairments and LAE on Insured Credit Derivatives $ 67
Total Economic Losses (Benefit) $ 252
Net payment activity on second-lien RMBS exposures consisted of the following:
$ in millions Q3 2011 Q4 2011 Q1 2012 Q2 2012 Q3 2012
Paid Claims $ 167 $ 146 $ 169 $ 139 $ 107
Collections on (9 ) (93 ) (7 ) (6 ) (6 )
Paid Claims
Paid LAE (net of 37 43 14 35 29
collections)
Net Payments $ 195 $ 96 $ 176 $ 168 $ 130
Net payments on insured second-lien RMBS exposures totaled $130 million in the
third quarter of 2012 compared with $168 million in the second quarter of 2012
and $195 million in the third quarter of 2011.
As of September 30, 2012, MBIA Corp.’s statutory balance sheet reflected $1.1
billion in cash and invested assets including $386 million of cash, short-term
investments and other highly liquid investments available to meet liquidity
demands, and excluding amounts held by subsidiaries.
MBIA Corp. had statutory capital of $1.5 billion and claims-paying resources
totaling $5.1 billion at September 30, 2012.
Advisory Services
The Company’s Advisory Services business is primarily conducted in its
Cutwater Asset Management subsidiaries. Cutwater recorded a pre-tax loss of $2
million in the third quarter of 2012 compared with a pre-tax loss of $1
million in the third quarter of 2011. The increase in the pre-tax loss in the
third quarter of 2012 compared with the third quarter of 2011 was primarily
the result of lower investment management fees.
Corporate Segment
The Corporate segment comprises MBIA Inc.’s holding company activities and
certain subsidiaries, including Optinuity Alliance Resources Corporation. The
Corporate segment recorded pre-tax income of $22 million in the third quarter
of 2012 compared with a pre-tax loss of $21 million in the third quarter of
2011. The improvement in the Corporate segment's pre-tax income was driven by
a $35 million fee paid by the Company’s conduit segment in the third quarter
of 2012 for administrative and other services. The fees for these services may
vary significantly from period to period.
As of September 30, 2012, the corporate activities of MBIA Inc. had $335
million of cash and highly liquid assets available for general corporate
liquidity purposes.
Wind-down Operations
The Company’s wind-down operations comprise its ALM and Conduit segments, both
of which are in run-off.
The Company’s wind-down operations recorded a pre-tax loss of $77 million in
the third quarter of 2012 compared with a pre-tax loss of $9 million in the
third quarter of 2011. The pre-tax loss in the third quarter of 2012 was
driven by $38 million in net losses on financial instruments at fair value and
foreign exchange, $37 million in VIE operating expenses resulting primarily
from a fee paid to the Corporate segment for administrative and other services
and $22 million in interest expense, partially offset by $16 million in net
gains on the extinguishment of debt. The pre-tax loss in the third quarter of
2011 was driven by negative net interest spread in the ALM business.
Ongoing negative net interest spread in the ALM business, a portion of which
is included in the $38 million net loss on financial instruments at fair value
and foreign exchange, totaled approximately $22 million in the quarter.
The Conduit segment repurchased $118 million par amount of medium-term notes
at discounts during the third quarter, resulting in net gains on the
extinguishment of debt that totaled $16 million.
As of September 30, 2012, the ALM business had cash and short-term investments
of $284 million, of which $97 million was not pledged directly as collateral.
An additional $298 million of cash as of September 30, 2012 was pledged to a
swap counterparty. Of this amount, $215 million is netted within “Derivative
liabilities,” $17 million is netted within “Other liabilities” and $66 million
is included in “Other assets” on the Company’s consolidated balance sheet.
Consent Solicitation
The Company announced today that it launched a consent solicitation pursuant
to which it is seeking the consent of its senior noteholders to amend the
indentures pursuant to which the senior notes were issued to substitute
National for MBIA Insurance Corporation in the definition of “Restricted
Subsidiary” and “Principal Subsidiaries” in the respective indentures. The
Consent Solicitation Statement is available on the Company’s website at
http://docs.mbia.com.
Conference Call
The Company will host a webcast and conference call for investors tomorrow,
Thursday, November 8, 2012 at 8:00 AM (EST) to discuss its third quarter
financial results and other matters relating to the Company. The webcast and
conference call will consist of brief remarks followed by a question and
answer session.
The dial-in number for the call is (877) 694-4769 in the U.S. and (404)
665-9935 from outside the U.S. The conference call code is 48056925. A live
webcast of the conference call will also be accessible on www.mbia.com.
A replay of the call will be available approximately two hours after the
completion of the call on November 8 until 11:59 p.m. on November 22 by
dialing (800) 585-8367 in the U.S. or (404) 537-3406 from outside the U.S. The
replay call code is also 48056925. In addition, a recording of the call will
be available on the Company's website approximately two hours after the
completion of the call.
Forward-Looking Statements
The information contained in this press release should be read in conjunction
with our filings made with the Securities and Exchange Commission. This
release includes statements that are not historical or current facts and are
“forward-looking statements” made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995. The words “believe,”
“anticipate,” “project,” “plan,” “expect,” “intend,” “will likely result,”
“looking forward” or “will continue,” and similar expressions identify
forward-looking statements. These statements are subject to certain risks and
uncertainties that could cause actual results to differ materially from
historical earnings and those presently anticipated or projected, including,
among other risks and uncertainties, whether the Company will realize, or will
be delayed in realizing, insurance loss recoveries expected in disputes with
sellers/servicers of RMBS transactions at the levels recorded in its financial
statements, the possibility that the Company will experience severe losses or
liquidity needs due to increased deterioration in its insurance portfolios and
in particular, due to the performance of CDOs including multi-sector, CMBS and
CRE CDOs and RMBS, the failure to obtain regulatory approval to implement our
risk reduction and liquidity strategies, the possibility that loss reserve
estimates are not adequate to cover potential claims, the possibility that the
Company’s obligations will be accelerated if MBIA Insurance Corporation
becomes subject to a rehabilitation or liquidation proceeding, the Company’s
ability to access capital and the Company’s exposure to significant
fluctuations in liquidity and asset values within the global credit markets,
in particular in the ALM business, the Company’s ability to fully implement
its strategic plan, including its ability to achieve high stable ratings for
National or any other insurance subsidiaries, and the Company’s ability to
commute certain of its insured exposures, including as a result of limited
available liquidity, the Company’s ability to favorably resolve litigation
claims against the Company, and changes in general economic and competitive
conditions. These and other factors that could affect financial performance or
could cause actual results to differ materially from estimates contained in or
underlying the Company’s forward-looking statements are discussed under the
“Risk Factors” section in MBIA Inc.’s most recent Annual Report on Form 10-K
and Quarterly Report on Form 10-Q, which may be updated or amended in the
Company’s subsequent filings with the Securities and Exchange Commission. The
Company cautions readers not to place undue reliance on any such
forward-looking statements, which speak only to their respective dates. The
Company undertakes no obligation to publicly correct or update any
forward-looking statement if it later becomes aware that such result is not
likely to be achieved.
MBIA Inc., headquartered in Armonk, New York is a holding company whose
subsidiaries provide financial guarantee insurance, as well as related
reinsurance, advisory and portfolio services, for the public and structured
finance markets, and asset management advisory services. The Company services
its clients around the globe with offices in New York, Denver, San Francisco,
Paris, London, Madrid and Mexico City. Please visit MBIA's website at
www.mbia.com.
Explanation of Non-GAAP Financial Measures
The following are explanations of why MBIA believes that the non-GAAP
financial measures used in this press release, which serve to supplement GAAP
information, are meaningful to investors.
Adjusted Book Value: Adjusted Book Value (ABV), a non-GAAP measure, is used by
the Company to supplement its analysis of GAAP book value. The Company uses
ABV as a measure of fundamental value and considers the change in ABV an
important measure of periodic financial performance. ABV adjusts GAAP book
value to remove the impact of certain items which the Company believes will
reverse over time, as well as to add in the impact of certain items which the
Company believes will be realized in GAAP book value in future periods. The
Company has limited such adjustments to those items that it deems to be
important to fundamental value and performance and which the likelihood and
amount can be reasonably estimated. ABV assumes no new business activity. The
Company has presented ABV to allow investors and analysts to evaluate the
Company using the same measure that MBIA’s management regularly uses to
measure financial performance. ABV is not a substitute for and should not be
viewed in isolation from GAAP book value.
ABV is calculated on a consolidated basis and a segment basis. ABV by segment
provides information about each segment’s contribution to consolidated ABV and
is calculated using the same formula. ABV per share represents that amount of
ABV allocated to each common share outstanding at the measurement date.
Adjusted Pre-tax Income (Loss): Adjusted pre-tax income (loss), a non-GAAP
measure, is used by the Company to supplement its analysis of GAAP pre-tax
income (loss). The Company uses adjusted pre-tax income (loss) as a measure of
fundamental periodic financial performance. Adjusted pre-tax income (loss)
adjusts GAAP pre-tax income (loss) to remove the effects of consolidating
insured VIEs and gains and losses related to fair valuing insured credit
derivatives, which the Company believes will reverse over time, and adds in
changes in the present value of insurance claims the Company expects to pay on
insured credit derivatives based on its ongoing insurance loss monitoring and
loss adjustment expenses. Adjusted pre-tax income (loss) is not a substitute
for and should not be viewed in isolation from GAAP pre-tax income (loss) and
the Company’s definition of adjusted pre-tax income (loss) may differ from
that used by other companies.
Claims-paying Resources (CPR): CPR is a key measure of the resources available
to National and MBIA Corp. to pay claims under their respective insurance
policies. CPR consists of total financial resources and reserves calculated on
a statutory basis. CPR has been a common measure used by financial guarantee
insurance companies to report and compare resources and continues to be used
by MBIA’s management to evaluate changes in such resources. The Company has
provided CPR to allow investors and analysts to evaluate National and MBIA
Corp. using the same measure that MBIA’s management uses to evaluate their
resources to pay claims under their respective insurance policies. There is no
directly comparable GAAP measure.
Credit Impairments on Insured Derivatives: Credit impairments on insured
derivatives represent actual payments for the period plus the present value of
the Company’s estimate of expected future claim payments for such
transactions, using a discount rate required by statutory accounting
principles, plus loss adjustment expenses. Since the Company’s insured credit
derivatives have similar terms, conditions, risks, and economic profiles to
its financial guarantee insurance policies, the Company evaluates them for
impairment periodically in the same way that it estimates loss and LAE for its
financial guarantee insurance policies. Credit impairments on insured
derivatives are equal to the Company’s statutory losses and loss adjustment
expenses for such contracts.
Credit impairments on insured derivatives may differ from the fair values
recorded in the Company’s financial statements. The Company expects that the
majority of its exposure written in derivative form will not be settled at
fair value. The fair value of an insured derivative contract will be
influenced by a variety of market and transaction-specific factors that may be
unrelated to potential future claim payments. In the absence of credit
impairments or the termination of derivatives at losses, the cumulative
unrealized losses recorded from fair valuing insured derivatives should
reverse before or at the maturity of the contracts. Contracts also may be
settled prior to maturity at amounts that may be more or less than their
recorded fair values. Those settlements can result in realized gains or
losses, and the reversal of unrealized losses. For these reasons, the Company
believes its disclosure of credit impairments on insured derivatives provides
additional meaningful information to investors about potential realized losses
on these contracts.
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (Unaudited)
(dollars in millions except per share amounts)
September 30, 2012 December 31, 2011
Assets
Investments:
Fixed-maturity securities held as
available-for-sale, at fair value
(amortized cost
$4,412 and $6,259) $ 4,634 $ 6,177
Fixed-maturity securities at fair 237 295
value
Investments pledged as collateral, at
fair value (amortized cost $424 and 350 543
$642)
Short-term investments held as
available-for-sale, at fair value
(amortized
cost $1,440 and $1,577) 1,445 1,571
Other investments (includes
investments at fair value of $16 and 27 107
$96)
Total investments 6,693 8,693
Cash and cash equivalents 298 473
Premiums receivable 1,280 1,360
Deferred acquisition costs 317 351
Insurance loss recoverable 3,316 3,046
Property and equipment, at cost (less
accumulated depreciation of $144 and 69 69
$139)
Deferred income taxes, net 1,446 1,745
Other assets 414 243
Assets of consolidated variable
interest entities:
Cash 143 160
Investments held-to-maturity, at
amortized cost
(fair value $2,867 and $3,489) 3,015 3,843
Fixed-maturity securities held as
available-for-sale, at fair value
(amortized cost $461 and $473) 442 432
Fixed-maturity securities at fair 1,754 2,884
value
Loans receivable at fair value 1,892 2,046
Loan repurchase commitments 1,051 1,077
Derivative assets - 450
Other assets 2 1
Total assets $ 22,132 $ 26,873
Liabilities and Equity
Liabilities:
Unearned premium revenue $ 3,091 $ 3,515
Loss and loss adjustment expense 945 836
reserves
Investment agreements 993 1,578
Medium-term notes (includes financial
instruments carried at
fair value of $168 and $165) 1,606 1,656
Securities sold under agreements to - 287
repurchase
Long-term debt 1,836 1,840
Derivative liabilities 3,332 5,164
Other liabilities 467 391
Liabilities of consolidated variable
interest entities:
Variable interest entity notes
(includes financial instruments
carried
at fair value of $3,626 and $4,754) 7,094 8,697
Long-term debt - 360
Derivative liabilities 180 825
Other liabilities 1 1
Total liabilities 19,545 25,150
Equity:
Preferred stock, par value $1 per
share; authorized shares─10,000,000;
issued and outstanding ─ none - -
Common stock, par value $1 per share;
authorized shares─400,000,000;
issued shares ─ 275,455,099 and 275 275
274,896,162
Additional paid-in capital 3,072 3,072
Retained earnings 1,403 805
Accumulated other comprehensive
income (loss), net of deferred
tax of $24 and $105 90 (176 )
Treasury stock, at cost ─ 81,729,792 (2,275 ) (2,276 )
and 81,752,966 shares
Total shareholders' equity of MBIA 2,565 1,700
Inc.
Preferred stock of subsidiary and 22 23
noncontrolling interest
Total equity 2,587 1,723
Total liabilities and equity $ 22,132 $ 26,873
MBIA INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (Unaudited)
(in millions)
Structured
U.S. Finance and
Three months ended Public International Advisory
Finance
September 30, 2012 Insurance Insurance Services Wind-down
(National) (MBIA Corp.) (Cutwater) Corporate Operations Subtotal Eliminations Consolidated
Revenues:
Premiums earned:
Scheduled premiums $ 52 $ 38 $ - $ - $ - $ 90 $ (5 ) $ 85
earned
Refunding premiums 82 - - - - 82 (12 ) 70
earned
Total premiums 134 38 - - - 172 (17 ) 155
earned
Net investment 56 8 - 3 7 74 (24 ) 50
income
Fees and 2 43 13 54 - 112 (92 ) 20
reimbursements
Change in fair value
of insured
derivatives:
Realized gains
(losses) and other - 12 - - - 12 - 12
settlements on
insured derivatives
Unrealized gains
(losses) on insured - (33 ) - - - (33 ) - (33 )
derivatives
Net change in fair
value of insured - (21 ) - - - (21 ) - (21 )
derivatives
Net gains (losses)
on financial
instruments at fair 22 14 - 11 (38 ) 9 (2 ) 7
value and foreign
exchange
Investment losses
related to
other-than-temporary
impairments:
Investment losses
related to - (3 ) - - - (3 ) - (3 )
other-than-temporary
impairments
Other-than-temporary
impairments
recognized in - (1 ) - (4 ) - (5 ) - (5 )
accumulated other
comprehensive loss
Net investment
losses related to - (4 ) - (4 ) - (8 ) - (8 )
other-than-temporary
impairments
Other net realized - 1 - - - 1 - 1
gains (losses)
Revenues of
consolidated VIEs:
Net investment - 13 - - 3 16 1 17
income
Net gains (losses)
on financial
instruments at fair - 42 - - - 42 2 44
value and foreign
exchange
Net gains (losses)
on extinguishment of - - - - 16 16 - 16
debt
Total revenues 214 134 13 64 (12 ) 413 (132 ) 281
Expenses:
Losses and loss 4 167 - - - 171 - 171
adjustment
Amortization of
deferred acquisition 26 24 - - - 50 (42 ) 8
costs
Operating 20 30 15 27 3 95 (23 ) 72
Interest - 62 - 15 22 99 (30 ) 69
Expenses of
consolidated VIEs:
Operating - 5 - - 37 42 (37 ) 5
Interest - 10 - - 3 13 - 13
Total expenses 50 298 15 42 65 470 (132 ) 338
Pre-tax income $ 164 $ (164 ) $ (2 ) $ 22 $ (77 ) $ (57 ) $ - (57 )
(loss)
Provision (benefit) (64 )
for income taxes
Net income (loss) $ 7
MBIA INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (Unaudited)
(in millions)
Structured
U.S. Finance and
Three months ended Public International Advisory
Finance
September 30, 2011 Insurance Insurance Services Wind-down
(National) (MBIA Corp.) (Cutwater) Corporate Operations Subtotal Eliminations Consolidated
Revenues:
Premiums earned:
Scheduled premiums $ 69 $ 51 $ - $ - $ - $ 120 $ (9 ) $ 111
earned
Refunding premiums 78 - - - - 78 (13 ) 65
earned
Total premiums 147 51 - - - 198 (22 ) 176
earned
Net investment 53 17 - 1 18 89 3 92
income
Fees and 2 36 14 22 - 74 (58 ) 16
reimbursements
Change in fair value
of insured
derivatives:
Realized gains
(losses) and other - (53 ) - - - (53 ) - (53 )
settlements on
insured derivatives
Unrealized gains
(losses) on insured - 776 - - - 776 - 776
derivatives
Net change in fair
value of insured - 723 - - - 723 - 723
derivatives
Net gains (losses)
on financial
instruments at fair 6 (12 ) - 8 11 13 - 13
value and foreign
exchange
Investment losses
related to
other-than-temporary
impairments:
Investment losses
related to - - - (11 ) (1 ) (12 ) - (12 )
other-than-temporary
impairments
Other-than-temporary
impairments
recognized in - - - 1 - 1 - 1
accumulated other
comprehensive loss
Net investment
losses related to - - - (10 ) (1 ) (11 ) - (11 )
other-than-temporary
impairments
Other net realized - 1 - - - 1 - 1
gains (losses)
Revenues of
consolidated VIEs:
Net investment - 12 - - 4 16 1 17
income
Net gains (losses)
on financial
instruments at fair - 86 - - - 86 2 88
value and foreign
exchange
Other net realized - - - - - - 5 5
gains (losses)
Total revenues 208 914 14 21 32 1,189 (69 ) 1,120
Expenses:
Losses and loss 10 180 - - - 190 - 190
adjustment
Amortization of
deferred acquisition 22 34 - - - 56 (44 ) 12
costs
Operating 19 35 15 28 3 100 (24 ) 76
Interest - 34 - 14 32 80 (5 ) 75
Expenses of
consolidated VIEs:
Operating - 8 - - 1 9 (2 ) 7
Interest - 10 - - 5 15 - 15
Total expenses 51 301 15 42 41 450 (75 ) 375
Pre-tax income $ 157 $ 613 $ (1 ) $ (21 ) $ (9 ) $ 739 $ 6 745
(loss)
Provision (benefit) 301
for income taxes
Net income (loss) $ 444
MBIA INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (Unaudited)
(in millions)
Structured
U.S. Finance and
Nine months ended Public International Advisory
Finance
September 30, 2012 Insurance Insurance Services Wind-down
(National) (MBIA Corp.) (Cutwater) Corporate Operations Subtotal Eliminations Consolidated
Revenues:
Premiums earned:
Scheduled premiums $ 168 $ 143 $ - $ - $ - $ 311 $ (20 ) $ 291
earned
Refunding premiums 202 - - - - 202 (29 ) 173
earned
Total premiums 370 143 - - - 513 (49 ) 464
earned
Net investment 167 22 - 10 37 236 (64 ) 172
income
Fees and 5 109 42 133 - 289 (242 ) 47
reimbursements
Change in fair value
of insured
derivatives:
Realized gains
(losses) and other - (420 ) - - - (420 ) - (420 )
settlements on
insured derivatives
Unrealized gains
(losses) on insured - 1,473 - - - 1,473 - 1,473
derivatives
Net change in fair
value of insured - 1,053 - - - 1,053 - 1,053
derivatives
Net gains (losses)
on financial
instruments at fair 43 18 - 19 (170 ) (90 ) 72 (18 )
value and foreign
exchange
Investment losses
related to
other-than-temporary
impairments:
Investment losses
related to - (6 ) - - (52 ) (58 ) - (58 )
other-than-temporary
impairments
Other-than-temporary
impairments
recognized in - (39 ) - (4 ) (4 ) (47 ) - (47 )
accumulated other
comprehensive loss
Net investment
losses related to - (45 ) - (4 ) (56 ) (105 ) - (105 )
other-than-temporary
impairments
Other net realized - 1 - 5 1 7 - 7
gains (losses)
Revenues of
consolidated VIEs:
Net investment - 40 - - 8 48 3 51
income
Net gains (losses)
on financial
instruments at fair - (25 ) - - - (25 ) 8 (17 )
value and foreign
exchange
Net gains (losses)
on extinguishment of - - - - 49 49 - 49
debt
Total revenues 585 1,316 42 163 (131 ) 1,975 (272 ) 1,703
Expenses:
Losses and loss 15 315 - - - 330 - 330
adjustment
Amortization of
deferred acquisition 75 81 - - - 156 (120 ) 36
costs
Operating 128 115 48 79 12 382 (75 ) 307
Interest - 175 - 43 79 297 (83 ) 214
Expenses of
consolidated VIEs:
Operating - 16 - - 72 88 (74 ) 14
Interest - 32 - - 11 43 - 43
Total expenses 218 734 48 122 174 1,296 (352 ) 944
Pre-tax income $ 367 $ 582 $ (6 ) $ 41 $ (305 ) $ 679 $ 80 759
(loss)
Provision (benefit) 161
for income taxes
Net income (loss) $ 598
MBIA INC. AND SUBSIDIARIES
STATEMENTS OF OPERATIONS (Unaudited)
(in millions)
Structured
U.S. Finance and
Nine months ended Public International Advisory
Finance
September 30, 2011 Insurance Insurance Services Wind-down
(National) (MBIA Corp.) (Cutwater) Corporate Operations Subtotal Eliminations Consolidated
Revenues:
Premiums earned:
Scheduled premiums $ 220 $ 173 $ - $ - $ - $ 393 $ (39 ) $ 354
earned
Refunding premiums 121 8 - - - 129 (21 ) 108
earned
Total premiums 341 181 - - - 522 (60 ) 462
earned
Net investment 165 65 - - 59 289 10 299
income
Fees and 5 89 46 68 - 208 (167 ) 41
reimbursements
Change in fair value
of insured
derivatives:
Realized gains
(losses) and other 2 (601 ) - - - (599 ) - (599 )
settlements on
insured derivatives
Unrealized gains
(losses) on insured - (531 ) - - - (531 ) - (531 )
derivatives
Net change in fair
value of insured 2 (1,132 ) - - - (1,130 ) - (1,130 )
derivatives
Net gains (losses)
on financial
instruments at fair 24 21 - 47 (206 ) (114 ) - (114 )
value and foreign
exchange
Investment losses
related to
other-than-temporary
impairments:
Investment losses
related to - (2 ) - (11 ) (12 ) (25 ) - (25 )
other-than-temporary
impairments
Other-than-temporary
impairments
recognized in - (2 ) - 1 (18 ) (19 ) - (19 )
accumulated other
comprehensive loss
Net investment
losses related to - (4 ) - (10 ) (30 ) (44 ) - (44 )
other-than-temporary
impairments
Net gains (losses)
on extinguishment of - - - - 24 24 2 26
debt
Other net realized - 2 - - 4 6 - 6
gains (losses)
Revenues of
consolidated VIEs:
Net investment - 39 - - 11 50 3 53
income
Net gains (losses)
on financial
instruments at fair - (27 ) - - 13 (14 ) 17 3
value and foreign
exchange
Other net realized - - - - - - 8 8
gains (losses)
Total revenues 537 (766 ) 46 105 (125 ) (203 ) (187 ) (390 )
Expenses:
Losses and loss 4 200 - - - 204 - 204
adjustment
Amortization of
deferred acquisition 64 106 - - - 170 (119 ) 51
costs
Operating 56 104 52 78 9 299 (73 ) 226
Interest - 101 - 44 98 243 (18 ) 225
Expenses of
consolidated VIEs:
Operating - 26 - - 2 28 (4 ) 24
Interest - 31 - - 14 45 - 45
Total expenses 124 568 52 122 123 989 (214 ) 775
Pre-tax income $ 413 $ (1,334 ) $ (6 ) $ (17 ) $ (248 ) $ (1,192 ) $ 27 (1,165 )
(loss)
Provision (benefit) (472 )
for income taxes
Net income (loss) $ (693 )
MBIA INC. AND SUBSIDIARIES
ADJUSTED PRE-TAX INCOME (LOSS) ^ RECONCILIATION ^(1)
(in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
Adjusted pre-tax income (loss) $ (118 ) $ (430 ) $ (818 ) $ (244 )
Additions to adjusted pre-tax
income (loss):
Impact of consolidating certain 29 9 62 68
VIEs
Mark-to-market gain (loss) on (33 ) 832 1,473 (671 )
insured credit derivatives
Subtractions from adjusted
pre-tax income (loss):
Impairments on insured credit (65 ) (334 ) (42 ) 318
derivatives
Pre-tax income (loss) $ (57 ) $ 745 $ 759 $ (1,165 )
STRUCTURED FINANCE & INTERNATIONAL INSURANCE (MBIA CORP.)
ADJUSTED PRE-TAX INCOME (LOSS) ^ RECONCILIATION ^(1)
(in millions)
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
Adjusted pre-tax income (loss) $ (224 ) $ (556 ) $ (970 ) $ (388 )
Additions to adjusted pre-tax
income (loss):
Impact of consolidating certain 28 3 37 43
VIEs
Mark-to-market gain (loss) on (33 ) 832 1,473 (671 )
insured credit derivatives
Subtractions from adjusted
pre-tax income (loss):
Impairments on insured credit (65 ) (334 ) (42 ) 318
derivatives
Pre-tax income (loss) $ (164 ) $ 613 $ 582 $ (1,334 )
^(1) A non-GAAP measure; please see Explanation of Non-GAAP Financial
Measures.
MBIA INC. AND SUBSIDIARIES
Components of Adjusted Book Value per Share:
September 30, December 31,
2012 2011 Change
Reported Book Value $ 13.25 $ 8.80 $ 4.45
Adjustments for items included in
book value per share (after-tax):
Cumulative net loss from 0.66 0.82 ($0.16 )
consolidating certain VIEs ^(1)
Cumulative unrealized loss on 11.13 16.12 ($4.99 )
insured credit derivatives
Net unrealized (gains) losses (0.66 ) 0.85 ($1.51 )
included in OCI
Adjustments for items not included
in book value per share
(after-tax):
Net unearned premium revenue ^(2) 10.14 11.65 ($1.51 )
(3)
Cumulative impairments on insured (3.88 ) (3.74 ) ($0.14 )
credit derivatives
Adjusted Book Value ^(4) $ 30.64 $ 34.50 ($3.86 )
^(1) Represents the impact on consolidated total equity of VIEs that are not
considered business enterprises of the Company.
The discount rate on financial guarantee installment premiums was the
^(2) risk free rate as defined by accounting principles for financial
guarantee insurance contracts and the discount rate on insured
derivative installment revenue and impairments was 5.0%.
The amounts consist of installment and upfront financial guarantee
^(3) premiums, insured derivative revenue and deferred
commitment/structuring fees, net of deferred acquisition costs.
^(4) A non-GAAP measure; please see Explanation of Non-GAAP Financial
Measures.
Net Income (Loss) per Common Share:
Three Months Ended Nine Months Ended
September 30, September 30,
2012 2011 2012 2011
Basic $ 0.04 $ 2.27 $ 3.09 ($3.50 )
Diluted $ 0.04 $ 2.26 $ 3.07 ($3.50 )
Weighted-Average Number of Common Shares Outstanding:
Basic 193,879,994 195,612,615 193,760,654 198,262,715
Diluted 194,977,642 196,347,502 194,835,537 198,262,715
INSURANCE OPERATIONS
Selected Financial Data Computed on a Statutory Basis
(dollars in millions)
National Public Finance Guarantee Corporation
September 30, 2012 December 31, 2011
Policyholders' surplus $ 1,817 $ 1,424
Contingency reserve 1,286 1,385
Statutory capital 3,103 2,809
Unearned premium reserve 2,153 2,485
Present value of installment premiums 226 239
^(1)
Premium resources ^(2) 2,379 2,724
Net loss and loss adjustment expense (75 ) (3 )
reserves ^(1)
Salvage reserves 240 161
Gross loss and loss adjustment 165 158
expense reserves
Total claims-paying resources $ 5,647 $ 5,691
Net debt service outstanding $ 544,781 $ 635,653
Capital ratio ^(3) 176:1 226:1
Claims-paying ratio ^(4) 113:1 134:1
MBIA Insurance Corporation
September 30, 2012 December 31, 2011
Policyholders' surplus $ 1,018 $ 1,597
Contingency reserve 493 706
Statutory capital 1,511 2,303
Unearned premium reserve 609 607
Present value of installment premiums 1,092 1,226
^(5)
Premium resources ^(2) 1,701 1,833
Net loss and loss adjustment expense (2,450 ) (2,266 )
reserves ^(5)
Salvage reserves ^(6) 4,378 4,249
Gross loss and loss adjustment 1,928 1,983
expense reserves
Total claims-paying resources $ 5,140 $ 6,119
Net debt service outstanding $ 151,001 $ 180,805
Capital ratio ^(3) 100:1 79:1
Claims-paying ratio ^(4) 33:1 33:1
^(1) At September 30, 2012 and December 31, 2011 the discount rate was
4.77%.
^(2) The amounts consist of Financial Guarantee premiums and Insured
Derivative premiums.
^(3) Net debt service outstanding divided by statutory capital.
Net debt service outstanding divided by the sum of statutory capital,
^(4) unearned premium reserve (after-tax), present value of installment
premiums (after-tax), net loss and loss adjustment expense reserves and
salvage reserves.
^(5) At September 30, 2012 and December 31, 2011 the discount rate was
5.59%.
^(6) The amount primarily consists of expected recoveries related to the
Company's put-back claims of ineligible mortgage loans.
Contact:
MBIA Inc.
Media:
Kevin Brown, +1-914-765-3648
or
Investor Relations:
Greg Diamond, +1-914-765-3190
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