MBIA Inc. (NYSE:MBI) (the Company) today reported a consolidated
GAAP net loss of $146 million, or $(1.64) per share, for the second
quarter of 2018 compared to a consolidated GAAP net loss of $1.2
billion, or $(9.78) per share, for the second quarter of 2017. The
net loss for the second quarter of 2018 was driven by the losses
associated with the deconsolidation of certain variable interest
entities (VIEs) and the additional losses and loss adjustment
expenses related to our Puerto Rico exposures. The decrease in
year-over-year consolidated GAAP net loss was primarily due to the
full valuation allowance on the Company’s deferred tax asset for
the second quarter of 2017. On a pretax basis, net losses were
lower by $64 million, primarily due to lower loss and loss
adjustment expenses, favorable gains for the fair value of interest
rate swaps as a result of higher interest rates in 2018 and foreign
exchange gains in 2018 versus foreign exchange losses in 2017,
partially offset by losses associated with the deconsolidation of
certain VIEs.
Book value per share was $12.16 as of June 30, 2018 compared
with $15.44 as of December 31, 2017. The decrease in book value per
share since year-end 2017 was primarily due to the year-to-date net
loss and unrealized losses on investments and debt carried at fair
value that is included in accumulated other comprehensive loss.
The Company also reported Adjusted Net Loss (a non-GAAP measure
defined in the attached Explanation of Non-GAAP Financial Measures)
of $51 million or $(0.58) per diluted share for the second quarter
of 2018 compared with Adjusted Net Loss of $139 million or $(1.12)
per diluted share for the second quarter of 2017. The reduced
Adjusted Net Loss for the second quarter of 2018 versus the second
quarter of 2017 was primarily due to lower losses and loss
adjustment expenses at National, primarily related 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
$27.24 compared with $28.77 as of December 31, 2017. Those amounts
reflect an adjustment made in the second quarter of 2018 to remove
the unearned premium revenue that is netted from GAAP loss
reserves. (The previously reported ABV as of December 31, 2017 of
$29.32 has been revised to conform to the current presentation.)
The decrease in ABV per share since year-end 2017 was primarily due
to additional loss and loss adjustment expense reserves at National
that are primarily related to its Puerto Rico exposures.
Adjusted Net Income (Loss) 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 Adjusted Net Income (Loss) to
net income, calculated in accordance with GAAP, are attached.
Statement from Company Representative
Bill Fallon, MBIA’s Chief Executive Officer noted, “This
quarter’s increase of National’s loss and loss adjustment expenses
associated with its Puerto Rico exposures contributed significantly
to the Adjusted Net Loss for the quarter.” Mr. Fallon added, “While
resolving our Puerto Rico exposures is our most significant
corporate objective, we have also made progress on other
objectives, such as reducing our consolidated operating expenses,
which are down 37% for the six months of this year compared to last
year’s first six months.”
Year-to-Date Results
The Company recorded a consolidated GAAP net loss of $244
million, or $(2.75) per diluted common share, for the six months
ended June 30, 2018 compared with a consolidated net loss of $1.3
billion, or $(10.13) per diluted common share, for the first six
months of 2017. The lower 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 non-GAAP Adjusted Net Loss for the six months
ended June 30, 2018 was $112 million or $(1.27) per diluted share
compared with Adjusted Net Loss of $130 million or $(1.02) per
diluted share for the first six months of 2017. The reduced
adjusted net loss for the first six months of 2018 was primarily
due to lower losses and loss adjustment expenses at National and
lower operating expenses for National and the Corporate segment,
partially offset by lower premium earnings at National.
MBIA Inc.
As of June 30, 2018, MBIA Inc.’s liquidity position totaled $389
million, down $30 million from March 31, 2018, consisting primarily
of cash and cash equivalents and other liquid invested assets. The
decrease in liquidity primarily relates to MBIA Inc. debt service
payments and operating expenses.
There were no purchases of MBIA Inc. shares during the second
quarter of 2018. As of August 2, 2018, there was $236 million
remaining under the Company’s $250 million share repurchase
authorization that was approved on November 3, 2017 and 90.7
million of the Company’s common shares were outstanding. During the
second quarter, MBIA Inc. issued 1.3 million shares of MBIA common
shares, which includes 1.2 million shares that were issued in April
and 0.1 million shares that were issued in June, in accordance with
the net settlement exercise provisions of warrants related to 11.9
million of MBIA common shares. As of June 30, 2018, no warrants
related to MBIA Inc. shares remained outstanding.
National Public Guarantee Financial Corporation
National had statutory capital of $2.7 billion and claims-paying
resources totaling $4.1 billion as of June 30, 2018. National’s
total fixed income investments plus cash and cash equivalents had a
book/adjusted carrying value of $3.4 billion as of June 30, 2018.
National’s insured portfolio declined by $3 billion during the
quarter, ending the quarter with $64 billion of gross par
outstanding. National ended the quarter with a leverage ratio of
gross par to statutory capital of 24 to 1, down from 26 to 1 as of
year-end 2017.
MBIA Insurance Corporation
The statutory capital of MBIA Insurance Corporation as of June
30, 2018 was $489 million and claims-paying resources totaled $1.4
billion. As of June 30, 2018, MBIA Insurance Corporation’s
liquidity position (excluding resources from its subsidiaries and
branches) totaled $105 million consisting primarily of cash and
cash equivalents and other liquid invested assets. In May 2018, a
settlement agreement was entered into regarding the bankruptcy of
the Zohar CDOs that outlines processes and procedures for
monetizing the assets of the Zohar CDOs.
Conference Call
The Company will host a webcast and conference call for
investors tomorrow, Thursday, August 9, 2018 at 8:00 AM (ET) to
discuss its second quarter 2018 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 2777679. 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 2777679. 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 and Quarterly Report on Form
10-Q, 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-Playing 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.
Adjusted Net Income (Loss): Adjusted Net Income (Loss) is
a useful measurement of performance because it measures income from
the Company excluding its international and structured finance
insurance segment, which is not part of our ongoing business
strategy. Also excluded from Adjusted Net Income (Loss) are
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. Adjusted Net
Income (Loss) eliminates the tax provision (benefit) as a result of
the establishment of a full valuation allowance against the
Company’s net deferred tax asset in 2017. Trends in the underlying
profitability of the Company’s businesses can be more clearly
identified without the fluctuating effects of the excluded items
previously noted. Adjusted Net Income (Loss) as defined by the
Company does not include all revenues and expenses required by
GAAP. Adjusted Net Income (Loss) is not a substitute for and should
not be viewed in isolation from GAAP net income.
Adjusted Net Income (Loss) per share represents that amount of
Adjusted Net 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, 2018 December 31, 2017
Assets Investments: Fixed-maturity securities held as
available-for-sale, at fair value (amortized cost $3,665 and
$3,728) $ 3,615 $ 3,712 Investments carried at fair value 225 200
Investments pledged as collateral, at fair value (amortized cost
$37 and $147) 36 148 Short-term investments, at fair value
(amortized cost $479 and $589) 478 589
Other investments (includes investments at
fair value of $- and $4)
1 6 Total investments 4,355
4,655 Cash and cash equivalents 179 122 Premiums receivable
349 369 Deferred acquisition costs 87 95 Insurance loss recoverable
1,359 511 Other assets 167 128 Assets of consolidated variable
interest entities: Cash 18 24 Investments held-to-maturity, at
amortized cost (fair value $892 and $916) 890 890 Investments
carried at fair value 169 182 Loans receivable at fair value 683
1,679 Loan repurchase commitments 415 407 Other assets 28
33
Total assets $
8,699 $
9,095 Liabilities and Equity
Liabilities: Unearned premium revenue $ 678 $ 752 Loss and loss
adjustment expense reserves 1,035 979 Long-term debt 2,184 2,121
Medium-term notes (includes financial instruments carried at fair
value of $149 and $115) 761 765 Investment agreements 312 337
Derivative liabilities 189 262 Other liabilities 205 165
Liabilities of consolidated variable interest entities: Variable
interest entity notes (includes financial instruments carried at
fair value of $981 and $1,069) 2,220 2,289
Total liabilities 7,584
7,670 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--283,625,689 and
283,717,973 284 284 Additional paid-in capital 3,154 3,171 Retained
earnings 1,018 1,095 Accumulated other comprehensive income (loss),
net of tax of $7 and $16 (255 ) (19 ) Treasury stock, at
cost--192,963,698 and 192,233,526 shares (3,098 ) (3,118 )
Total shareholders' equity of MBIA Inc. 1,103 1,413 Preferred stock
of subsidiary 12 12
Total equity
1,115 1,425 Total
liabilities and equity $
8,699 $
9,095
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, 2018 2017
2018 2017 Revenues: Premiums
earned: Scheduled premiums earned $ 29 $ 28 $ 52 $ 56 Refunding
premiums earned 7 16 24
37 Premiums earned (net of ceded premiums of $1, $1,
$3 and $3) 36 44 76 93 Net investment income 34 37 65 89 Fees and
reimbursements - 6 6 8 Change in fair value of insured derivatives:
Realized gains (losses) and other settlements on insured
derivatives (25 ) (3 ) (44 ) (34 ) Unrealized gains (losses) on
insured derivatives 18 6 32
(16 ) Net change in fair value of insured derivatives
(7 ) 3 (12 ) (50 ) Net gains (losses) on financial instruments at
fair value and foreign exchange 22 (61 ) 13 (44 ) Net investment
losses related to other-than-temporary impairments: Investment
losses related to other-than-temporary impairments - (54 ) - (54 )
Other-than-temporary impairments recognized in accumulated other
comprehensive income (loss) (1 ) 43 (2
) 41 Net investment losses related to
other-than-temporary impairments (1 ) (11 ) (2 ) (13 ) Net gains
(losses) on extinguishment of debt - - - 8 Other net realized gains
(losses) - 34 (1 ) 37 Revenues of consolidated variable interest
entities: Net investment income 8 6 16 12 Net gains (losses) on
financial instruments at fair value and foreign exchange 13 14 17
(19 ) Other net realized gains (losses) (93 ) -
(93 ) 28 Total revenues 12 72 85 149
Expenses: Losses and loss adjustment 59 170 131 264
Amortization of deferred acquisition costs 4 8 8 15 Operating 19 32
39 61 Interest 52 50 103 98 Expenses of consolidated variable
interest entities: Operating 3 3 5 5 Interest 21
19 41 36 Total expenses
158 282 327 479
Income (loss) before income taxes (146 ) (210 ) (242 ) (330
) Provision (benefit) for income taxes - 1,019
2 971
Net income (loss) $
(146 ) $
(1,229 ) $
(244
) $
(1,301 ) Net income (loss) per
common share: Basic $ (1.64 ) $ (9.78 ) $ (2.75 ) $ (10.13 )
Diluted $ (1.64 ) $ (9.78 ) $ (2.75 ) $ (10.13 )
Weighted
average number of common shares outstanding: Basic 89,131,760
125,653,189 88,865,272 128,511,897 Diluted 89,131,760 125,653,189
88,865,272 128,511,897
ADJUSTED NET
INCOME (LOSS) RECONCILIATION(1)
(In millions except per share amounts)
Three Months Ended Six Months Ended June
30, June 30, 2018 2017 2018
2017 Net income (loss) $ (146 ) $ (1,229 ) $ (244 ) $
(1,301 ) Less: adjusted net income (loss) adjustments: Income
(loss) before income taxes of the international and structured
finance insurance segment and eliminations (120 ) (20 ) (156 ) (185
) 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) 5 (16 ) 27 16 Foreign exchange
gains (losses)(2) 26 (32 ) 13 (39 ) Net gains (losses) on sales of
investments(2) (6 ) 13 (11 ) 15 Net investment losses related to
OTTI (1 ) (11 ) (2 ) (13 ) Net gains (losses) on extinguishment of
debt - - - 8 Other net realized gains (losses) - (1 ) (2 ) (2 )
Adjusted net income adjustment to the (provision) benefit for
income tax(3) 1 (1,023 ) (1 )
(971 ) Adjusted net income (loss) $ (51 ) $ (139 ) $ (112 ) $ (130
) Adjusted net income (loss) per diluted common share $
(0.58 ) $ (1.12 ) $ (1.27 ) $ (1.02 ) (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)(2)
As ofJune 30, 2018
As ofDecember 31, 2017
Reported Book Value per Share $ 12.16 $ 15.44 Book value per
share adjustments: Remove negative book value of MBIA Corp. (3)
10.56 8.84 Remove net unrealized (gains) losses on
available-for-sale securities included in other comprehensive
income (loss) 0.63 0.26 Add net unearned premium revenue in excess
of expected losses (4)(5) 3.89 4.23 Total book value
per share adjustments 15.08 13.33
Adjusted book
value per share $ 27.24 $ 28.77 Shares outstanding in
millions 90.7 91.5 (1) A non-GAAP measure; please see
Explanation of Non-GAAP Financial Measures. (2) We have modified
our calculation of ABV as of June 30, 2018 and revised the prior
year's calculation to conform to the current presentation. The net
unearned premium revenue component of ABV has been adjusted to
remove the amount of unearned premium revenue that is used in the
GAAP calculation of our insurance loss reserves. (3) The book value
of the MBIA Corp. does not provide significant economic or
shareholder value to MBIA Inc. The amounts being reversed exclude
all deferred taxes available to MBIA Inc., net of valuation
allowance. (4) The discount rate on financial guarantee installment
premiums was the risk-free rate as defined by GAAP for financial
guarantee insurance contracts. (5) The amounts consist of financial
guarantee premiums in excess of expected losses, net of the related
deferred acquisition costs.
INSURANCE
OPERATIONS
Selected
Financial Data Computed on a Statutory Basis
(Dollars in millions)
National Public
Finance Guarantee Corporation
June 30, 2018 December 31, 2017 Policyholders'
surplus $ 2,105 $ 2,166 Contingency reserves 561
594 Statutory capital 2,666 2,760 Unearned
premiums 543 585 Present value of installment premiums (1)
162 164 Premium resources (2) 705 749
Net loss and loss adjustment expense reserves (1) 250 227 Salvage
reserves 430 387 Gross loss and loss
adjustment expense reserves 680 614
Total claims-paying resources $ 4,051 $ 4,123
Net debt service outstanding $ 118,158 $ 129,668 Capital
ratio (3) 44:1 47:1 Claims-paying ratio (4) 30:1 33:1
MBIA Insurance
Corporation
June 30, 2018 December 31, 2017 Policyholders’
surplus $ 275 $ 237 Contingency reserves 214
227 Statutory capital 489 464 Unearned premiums 177
195
Present value of installment premiums (5)
(7)
176 192
Premium resources (2)
353 387 Net loss and loss adjustment expense reserves (5)
(855 ) (792 ) Salvage reserves (6) 1,419 1,428
Gross loss and loss adjustment expense reserves 564
636 Total claims-paying resources $ 1,406
$ 1,487 Net debt service outstanding $ 18,501
$ 20,151 Capital ratio (3) 38:1 43:1 Claims-paying
ratio (4) 13:1 14:1 (1) Calculated using a discount
rate of 3.25% as of June 30, 2018 and December 31, 2017. (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) Calculated
using a discount rate of 5.20% as of June 30, 2018 and December 31,
2017. (6) This amount primarily consists of expected recoveries
related to the Company's excess spread, put-backs and CDOs. (7)
Based on the Company's estimate of the remaining life for its
insured exposures.
View source
version on businesswire.com: https://www.businesswire.com/news/home/20180808005667/en/
MBIA Inc.Greg Diamond, 914-765-3190Investor and Media
Relationsgreg.diamond@mbia.com
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