MBIA Inc. (NYSE:MBI) (the Company) today reported a consolidated
GAAP net loss of $1.2 billion, or $(9.78) per share, for the second
quarter of 2017 compared to a consolidated GAAP net loss of $27
million, or $(0.20) per share, for the second quarter of 2016. The
increase in year-over-year consolidated GAAP net loss was primarily
due to the previously disclosed full valuation allowance on the
Company’s deferred tax asset as of the second quarter of 2017. In
addition, increased losses and loss adjustment expenses at National
Public Finance Guarantee Corporation (National) also contributed to
the unfavorable variance for this year’s second quarter result
compared with last year’s second quarter.
Book value per share was $15.45 as of June 30, 2017 compared
with $23.87 as of December 31, 2016. The decrease in book value per
share since year-end 2016 was primarily due to the full valuation
allowance on the Company’s deferred tax asset and additional loss
and loss adjustment expense reserves, partially offset by the
reduction of shares outstanding resulting from the repurchase of
9.0 million MBIA common shares during the first half of 2017.
The Company also reported a Combined Operating Loss (a non-GAAP
measure defined in the attached Explanation of Non-GAAP Financial
Measures) of $139 million or $(1.09) per diluted share for the
second quarter of 2017 compared with Combined Operating Income of
$15 million or $0.12 per diluted share for the second quarter of
2016. The negative result for the second quarter of 2017 was
primarily due to increased losses and loss adjustment expenses at
National, primarily due to its Puerto Rico exposures.
Adjusted Book Value (ABV) per share (a non-GAAP measure defined
in the attached Explanation of Non-GAAP Financial Measures) was
$26.26 as of June 30, 2017 compared with $31.88 as of December 31,
2016. The decrease in ABV per share since year-end 2016 was
primarily due to the full valuation allowance on the Company’s
deferred tax asset and additional loss and loss adjustment expense
reserves, partially offset by the reduction of shares outstanding
resulting from the repurchase of 9.0 million MBIA common shares
during the first half of 2017.
Operating Income and ABV per share provide investors with views
of the Company’s operating results that management uses in
measuring financial performance. Reconciliations of ABV per share
to book value per share, and Operating Income to net income,
calculated in accordance with GAAP, are attached.
Statement from Company Representative
Bill Fallon, MBIA’s President and Chief Operating Officer noted,
“National’s losses and loss adjustment expenses in the quarter
resulted from its insurance of several Puerto Rico credits, nearly
all of which have entered bankruptcy-like proceedings under
PROMESA. The ill-advised and unlawful actions of the Oversight
Board and the administration of Governor Rossello have
unnecessarily sacrificed PREPA’s restructuring support agreement
and caused creditors to launch numerous legal actions, including
five litigations where National is a plaintiff. We intend to
vigorously exercise the rights and remedies associated with our
insurance on the Puerto Rico bonds.”
Year-to-Date Results
The Company recorded a consolidated GAAP net loss of $1.3
billion, or $(10.13) per diluted common share, for the six months
ended June 30, 2017 compared with a consolidated net loss of $105
million, or $(0.78) per diluted common share, for the first six
months of 2016. The greater loss this year was primarily driven by
the valuation allowance established on the Company’s deferred tax
asset for the second quarter of 2017.
The Company’s Combined Operating Loss for the six months ended
June 30, 2017 was $130 million or $(1.02) per diluted share
compared with Combined Operating Income of $31 million or $0.24 per
diluted share for the first six months of 2016. The $161 million
adverse result for the first six months of 2017 was primarily due
to National’s greater losses and loss adjustment expenses,
primarily related to its Puerto Rico exposures.
MBIA Inc.
As of June 30, 2017, the Company’s consolidated net operating
loss was $2.8 billion, which represented the largest component of
its deferred tax asset, on which the Company established a full
valuation allowance during the second quarter of 2017.
During the second quarter of 2017, the Company and its
subsidiaries repurchased 4.2 million of its common shares at an
average price of $8.30 per share.
As of June 30, 2017, there was $250 million remaining under the
Company’s current share repurchase authorization, which was
approved by the Company’s Board of Directors on June 27, 2017. As
of August 2, 2017, 126 million of the Company’s common shares were
outstanding.
As of June 30, 2017, MBIA Inc.’s liquidity position totaled $287
million consisting primarily of cash and cash equivalents and
liquid short-term invested assets.
National Public Guarantee Financial Corporation
National had statutory capital of $3.3 billion and claims-paying
resources totaling $4.6 billion as of June 30, 2017. National’s
liquidity position totaled $689 million consisting primarily of
cash and cash equivalents and liquid short-term invested assets as
of June 30, 2017.
MBIA Insurance Corporation
The statutory capital of MBIA Insurance Corporation as of June
30, 2017 was $548 million and claims-paying resources totaled $1.6
billion. As of June 30, 2017, MBIA Insurance Corporation’s
liquidity position (excluding resources from its subsidiaries and
branches) totaled $115 million consisting primarily of cash and
cash equivalents and liquid short-term invested assets.
Conference Call
The Company will host a webcast and conference call for
investors tomorrow, Wednesday, August 9, 2017 at 8:00 AM (ET) to
discuss its second quarter 2017 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 53460603. A live webcast of the conference call will also be
accessible on www.mbia.com.
A replay of the conference call will become available
approximately two hours after the end of the call on August 9 and
will remain available until 11:59 p.m. on August 23 by dialing
(800) 585-8367 in the U.S. or (404) 537-3406 from outside the U.S.
The code for the replay of the call is also 53460603. In addition,
a recorded replay of the call will become available on the
Company's website approximately two hours after the completion of
the call.
Forward-Looking Statements
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,” “estimate,” “intend,” “will,” “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
factors, the possibility that MBIA Inc. or National will experience
increased credit losses or impairments on public finance
obligations issued by state, local and territorial governments and
finance authorities that are experiencing unprecedented fiscal
stress; the possibility that loss reserve estimates are not
adequate to cover potential claims; MBIA Inc.’s or National’s
ability to fully implement their strategic plan; 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 MBIA Inc.’s or National’s forward-looking statements are
discussed under the “Risk Factors” section in MBIA Inc.’s most
recent Annual Report on Form 10-K, which may be updated or amended
in MBIA Inc.’s subsequent filings with the Securities and Exchange
Commission. MBIA Inc. and National caution readers not to place
undue reliance on any such forward-looking statements, which speak
only to their respective dates. National and MBIA Inc. undertake 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 Purchase, New York is a holding
company whose subsidiaries provide financial guarantee insurance
for the public and structured finance markets. Please visit MBIA's
website at www.mbia.com.
Explanation of Non-GAAP Financial Measures
The following are explanations of why the Company 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 by removing the GAAP book value amounts for items that are
not expected to impact shareholder value and 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 per share represents that amount of ABV allocated to each
common share outstanding at the measurement date.
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.
Combined Operating Income (Loss): The sum of Operating
Income (Loss) of the U.S. public finance insurance (National) and
corporate segments net of eliminations. See “Operating Income
(Loss)” definition.
Operating Income (Loss): Operating Income (Loss) is a
useful measurement of performance because it measures income from
the Company’s core operating segments, unaffected by investment
portfolio realized gains and losses, gains and losses on financial
instruments at fair value and foreign exchange, and realized gains
and losses on extinguishment of debt. Operating Income (Loss) also
excludes net income of the Company’s international and structured
finance insurance. Trends in the underlying profitability of the
Company’s businesses can be more clearly identified without the
fluctuating effects of the excluded items noted above. Operating
Income (Loss) is disclosed on an after-tax basis and adjustments to
net income are typically tax-effected at 35% unless a specific
adjustment, or component thereof, is not taxable. Operating Income
(Loss) as defined by the Company does not include all revenues and
expenses required by GAAP. Operating Income (Loss) is not a
substitute for and should not be viewed in isolation from GAAP net
income.
Operating Income (Loss) per share represents that amount of
Operating Income (Loss) allocated to each fully diluted
weighted-average common share outstanding for the measurement
period.
MBIA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE
SHEETS (Unaudited) (In millions except share and per share
amounts)
June 30, 2017 December 31,
2016 Assets Investments: Fixed-maturity
securities held as available-for-sale, at fair value (amortized
cost $4,208 and $4,713) $ 4,176 $ 4,694 Investments carried at fair
value 154 146 Investments pledged as collateral, at fair value
(amortized cost $168 and $234) 169 233 Short-term investments held
as available-for-sale, at fair value (amortized cost $767 and $552)
768 552 Other investments (includes investments at fair value of $3
and $5) 5 8 Total investments 5,272 5,633
Cash and cash equivalents 143 163 Premiums receivable 384
409 Deferred acquisition costs 104 118 Insurance loss recoverable
483 504 Assets held for sale - 555 Deferred income taxes, net - 970
Other assets 106 113 Assets of consolidated variable interest
entities: Cash 21 24 Investments held-to-maturity, at amortized
cost (fair value $894 and $876) 890 890 Investments carried at fair
value 241 255 Loans receivable at fair value 1,690 1,066 Loan
repurchase commitments 407 404 Other assets 26
33
Total assets $
9,767 $
11,137
Liabilities and Equity Liabilities: Unearned
premium revenue $ 861 $ 958 Loss and loss adjustment expense
reserves 714 541 Long-term debt 2,061 1,986 Medium-term notes
(includes financial instruments carried at fair value of $123 and
$101) 876 895 Investment agreements 365 399 Derivative liabilities
293 299 Liabilities held for sale - 346 Other liabilities 175 233
Liabilities of consolidated variable interest entities:
Variable interest entity notes (includes
financial instruments carried at fair value of $1,261 and
$1,351)
2,466 2,241
Total liabilities
7,811 7,898
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--283,997,527 and
283,989,999
284 284 Additional paid-in capital 3,168 3,160 Retained earnings
1,399 2,700 Accumulated other comprehensive income (loss), net of
tax of $15 and $37 (39 ) (128 ) Treasury stock, at
cost--158,175,472 and 148,789,168 shares (2,868 ) (2,789 )
Total shareholders' equity of MBIA Inc. 1,944 3,227 Preferred stock
of subsidiary 12 12
Total equity
1,956 3,239 Total
liabilities and equity $
9,767 $
11,137
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (In
millions except share and per share amounts)
Three Months Ended June 30, Six Months Ended June 30,
2017 2016 2017
2016 Revenues: Premiums earned:
Scheduled premiums earned $ 28 $ 44 $ 56 $ 89 Refunding premiums
earned 16 29 37 59
Premiums earned (net of ceded premiums of
$1, $2, $3 and $3)
44 73 93 148 Net investment income 37 37 89 76 Fees and
reimbursements 6 1 8 2 Change in fair value of insured derivatives:
Realized gains (losses) and other
settlements on insured derivatives
(3 ) (2 ) (34 ) (16 ) Unrealized gains (losses) on insured
derivatives 6 (6 ) (16 ) (20 )
Net change in fair value of insured derivatives 3 (8 ) (50 ) (36 )
Net gains (losses) on financial
instruments at fair value and foreign exchange
(61 ) 14 (44 ) (55 ) Net investment losses related to
other-than-temporary impairments: Investment losses related to
other-than-temporary impairments (54 ) - (54 ) (1 )
Other-than-temporary impairments
recognized in accumulated other comprehensive income (loss)
43 - 41 -
Net investment losses related to
other-than-temporary impairments
(11 ) - (13 ) (1 ) Net gains (losses) on extinguishment of debt - 3
8 5 Other net realized gains (losses) 34 - 37 (1 ) Revenues of
consolidated variable interest entities: Net investment income 6 5
12 20
Net gains (losses) on financial
instruments at fair value and foreign exchange
14 (7 ) (19 ) (8 ) Other net realized gains (losses) -
- 28 - Total
revenues 72 118 149 150
Expenses: Losses and loss
adjustment 170 77 264 99 Amortization of deferred acquisition costs
8 10 15 20 Operating 32 30 61 65 Interest 50 49 98 99 Expenses of
consolidated variable interest entities: Operating 3 3 5 7 Interest
19 4 36 16
Total expenses 282 173 479
306 Income (loss) before income taxes (210 )
(55 ) (330 ) (156 ) Provision (benefit) for income taxes
1,019 (28 ) 971 (51 )
Net
income (loss) $
(1,229 ) $
(27 ) $
(1,301 ) $
(105 ) Net income
(loss) per common share: Basic $ (9.78 ) $ (0.20 ) $ (10.13 ) $
(0.78 ) Diluted $ (9.78 ) $ (0.20 ) $ (10.13 ) $ (0.78 )
Weighted average number of common shares outstanding: Basic
125,653,189 132,677,066 128,511,897 134,245,952 Diluted 125,653,189
132,677,066 128,511,897 134,245,952
COMBINED
OPERATING INCOME
(LOSS) RECONCILIATION(1)
(In millions)
Three Months
Ended Six Months Ended June 30, June 30,
2017 2016 2017 2016 Net income (loss) $
(1,229 ) $ (27 ) $ (1,301 ) $ (105 ) Less: operating income
adjustments:
Income (loss) before income taxes of the
international and structured
finance insurance segment and
eliminations
(20 ) (92 ) (185 ) (148 )
Adjustments to income before income taxes
of the U.S. public finance
insurance and corporate segments:
Mark-to-market gains (losses) on financial instruments(2) (16 ) (11
) 16 (59 ) Foreign exchange gains (losses)(2) (32 ) 10 (39 ) (18 )
Net gains (losses) on sales of investments(2) 13 13 15 19 Net
investment losses related to OTTI (11 ) - (13 ) (1 ) Net gains
(losses) on extinguishment of debt - 3 8 5 Other net realized gains
(losses) (1 ) (1 ) (2 ) (2 ) Operating income adjustment to the
(provision) benefit for income tax(3) (1,023 )
36 (971 ) 68
Operating income (loss) $ (139 ) $ 15 $ (130 )
$ 31 (1) A non-GAAP measure;
please see Explanation of Non-GAAP Financial Measures. (2)
Reported within "Net gains (losses) on
financial instruments at fair value and foreign exchange" on the
Company's consolidated statements of operations.
(3) Reported within "Provision (benefit) for income taxes" on the
Company's consolidated statements of operations.
COMPONENTS OF
ADJUSTED BOOK VALUE PER SHARE(1)
As of June 30, 2017
As of December 31, 2016
Reported Book Value per Share $ 15.45 $ 23.87 Reverse
book value of the MBIA Corp. legal entity (2) 6.39
5.07 Book value after MBIA Corp. legal entity adjustment
21.84 28.94 Other book value adjustments: Reverse net unrealized
(gains) losses included in other comprehensive income (loss) 0.34
0.24 Add net unearned premium revenue (3) 4.08 4.31 Add tax effect
on unrealized (gains) losses and unearned premium revenue (4)
- (1.61 ) Total other book value adjustments per
share 4.42 2.94
Adjusted book value per
share $ 26.26 $ 31.88 (1) A non-GAAP
measure; please see Explanation of Non-GAAP Financial Measures. (2)
The book value of the MBIA Corp. legal entity does not provide
significant economic or shareholder value to MBIA Inc. (3) Consists
of financial guarantee premiums, net of deferred acquisition costs.
The discount rate on financial guarantee installment premiums was
the risk-free rate as defined by the accounting principles for
financial guarantee insurance contracts. (4) As of June 30, 2017,
ABV per share was adjusted by applying a zero effective tax rate to
the book value adjustments.
INSURANCE
OPERATIONS
Selected
Financial Data Computed on a Statutory Basis
(Dollars in millions)
National Public
Finance Guarantee Corporation
June 30, 2017 December 31, 2016
Policyholders' surplus $ 2,644 $ 2,731 Contingency reserves
690 745 Statutory capital 3,334 3,476
Unearned premiums 700 786 Present value of installment premiums (1)
174 187 Premium resources (2) 874 973
Net loss and loss adjustment expense reserves (1) 142 (98 )
Salvage reserves 257 256 Gross loss and
loss adjustment expense reserves 399 158
Total claims-paying resources $ 4,607 $ 4,607
Net debt service outstanding $ 161,082 $ 185,099
Capital ratio (3) 48:1 53:1 Claims-paying ratio (4) 37:1
43:1
MBIA Insurance
Corporation (5)
June 30, 2017 December 31, 2016
Policyholders’ surplus $ 302 $ 238 Contingency reserves 246
254 Statutory capital 548 492 Unearned
premiums 211 319 Present value of installment premiums (6) (8)
202 424 Premium resources (2) 413 743
Net loss and loss adjustment expense reserves (6) (908 )
(207 ) Salvage reserves (7) 1,538 917
Gross loss and loss adjustment expense reserves 630
710 Total claims-paying resources $ 1,591 $
1,945 Net debt service outstanding $ 23,217 $ 43,215
Capital ratio (3) 42:1 88:1 Claims-paying ratio (4)
16:1 26:1 (1) Calculated using a discount rate of
3.18% as of June 30, 2017 and December 31, 2016. (2) Includes
financial guarantee and insured credit derivative related premiums.
(3) Net debt service outstanding divided by statutory capital. (4)
Net debt service outstanding divided by
the sum of statutory capital, unearned premium reserve (after-tax),
present value of installment premiums (after-tax), net loss and
loss adjustment expense reserves and salvage reserves.
(5) The table reflects MBIA Insurance Corporation including its
subsidiary MBIA UK Insurance Limited for December 31, 2016 only.
(6) Calculated using a discount rate of 5.15% as of June 30, 2017
and December 31, 2016. (7) This amount primarily consists of
expected recoveries related to the Company's excess spread,
put-backs and CDOs. (8) Based on the Company's estimate of the
remaining life for its insured exposures.
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version on businesswire.com: http://www.businesswire.com/news/home/20170808006305/en/
MBIA Inc.Greg Diamond, 914-765-3190Investor and Media
Relationsgreg.diamond@mbia.com
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