MBIA (MBI) - 2023 Q2 - Quarterly Report

PART I FINANCIAL INFORMATION This section provides the company's consolidated financial statements, management's discussion and analysis, and disclosures on market risks and internal controls Item 1. Financial Statements This section presents MBIA Inc.'s unaudited consolidated financial statements, including balance sheets, statements of operations, and cash flows, with detailed notes Consolidated Balance Sheets The consolidated balance sheet shows a decrease in total assets from $3.375 billion at year-end 2022 to $3.257 billion as of June 30, 2023, with total liabilities stable and shareholders' equity becoming more negative Consolidated Balance Sheet Summary (in millions) | Account | June 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $3,257 | $3,375 | | Total Investments | $2,445 | $2,676 | | Cash and cash equivalents | $208 | $50 | | Total Liabilities | $4,245 | $4,251 | | Long-term debt | $2,505 | $2,428 | | Loss and loss adjustment expense reserves | $361 | $439 | | Total Shareholders' Equity | ($1,000) | ($882) | Consolidated Statements of Operations The company reported an increased net loss attributable to MBIA Inc. for Q2 and H1 2023 compared to the prior year, driven by lower revenues and higher expenses Consolidated Statement of Operations Summary (in millions, except per share data) | Metric | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $28 | $40 | $30 | $80 | | Total Expenses | $106 | $76 | $191 | $189 | | Net Income (Loss) Attributable to MBIA Inc. | ($74) | ($36) | ($167) | ($109) | | Net Income (Loss) per Share (Basic & Diluted) | ($1.46) | ($0.72) | ($3.51) | ($2.20) | Consolidated Statements of Cash Flows Net cash used by operating activities significantly shifted to ($78) million for the six months ended June 30, 2023, from $232 million provided in the prior year, primarily due to lower recoveries and reinsurance Consolidated Cash Flow Summary (in millions) | Activity | Six Months Ended June 30, 2023 | Six Months Ended June 30, 2022 | | :--- | :--- | :--- | | Net Cash (Used) Provided by Operating Activities | ($78) | $232 | | Net Cash Provided (Used) by Investing Activities | $314 | ($12) | | Net Cash Provided (Used) by Financing Activities | ($88) | ($172) | | Net Increase (Decrease) in Cash | $148 | $47 | Notes to Consolidated Financial Statements The notes detail accounting policies and financial results, covering business developments, loss reserves, fair value measurements, segment performance, and litigation - The company operates in three segments: U.S. public finance insurance (through National), corporate, and international and structured finance insurance (through MBIA Corp)[28] - On January 1, 2023, the Puerto Rico Electric Power Authority (PREPA) defaulted on National insured bonds, leading to a gross claim payment of $18 million, with a further $119 million claim payment on July 1, 2023[29] - National entered into a PREPA Plan Support Agreement (PSA) with the Oversight Board in January 2023 to resolve claims related to PREPA revenue bonds, subject to court approval and other conditions[30] - The company has a full valuation allowance of $1.2 billion against its net deferred tax asset as of June 30, 2023, resulting in a 0.0% effective tax rate for the period[199] Management's Discussion and Analysis of Financial Condition and Results of Operations (MD&A) Management discusses the company's financial performance, liquidity, and capital resources, covering consolidated and segment results Overview The company manages three segments, suspended strategic alternative exploration in May 2023, and initiated a new $100 million share repurchase program amid PREPA defaults - The company suspended its process of exploring strategic alternatives in May 2023 due to market conditions[240] - The Board of Directors approved a new $100 million share repurchase program on May 3, 2023, with National purchasing 2.9 million shares for an average price of $8.06 per share during the first six months of 2023[246] Results of Operations Consolidated net loss increased in Q2 and H1 2023 due to lower revenues and higher expenses, with varying segment performance and the presentation of non-GAAP measures Reconciliation of GAAP Net Income (Loss) to Non-GAAP Adjusted Net Income (Loss) (in millions) | Description | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Net Income (Loss) (GAAP) | ($74) | ($36) | ($167) | ($109) | | Less: Adjustments | (52) | (11) | (144) | (34) | | Adjusted Net Income (Loss) (Non-GAAP) | ($22) | ($47) | ($23) | ($143) | Book Value Per Share Adjustments (in dollars) | Description | As of June 30, 2023 | As of Dec 31, 2022 | | :--- | :--- | :--- | | GAAP Book Value Per Share | ($19.21) | ($16.07) | | Remove negative book value per share of MBIA Corp. | ($41.88) | ($37.76) | | Remove net unrealized gains (losses) on AFS securities | ($3.43) | ($3.96) | | Include net unearned premium revenue in excess of expected losses | $3.06 | $3.08 | Liquidity and Capital Resources The company manages liquidity on a legal-entity basis, with capital resources including equity and debt, and statutory capital details for segments - As of June 30, 2023, MBIA Inc. had a liquidity position of $197 million, down from $230 million at year-end 2022[365] - National's Claims-Paying Resources (CPR) on a statutory basis were $2.39 billion as of June 30, 2023, down from $2.44 billion at year-end 2022[387] - MBIA Corp.'s Claims-Paying Resources (CPR) on a statutory basis were $561 million as of June 30, 2023, down from $669 million at year-end 2022[398][395] - The NYSDFS has not approved interest payments on MBIA Corp.'s Surplus Notes since January 2013, with unpaid interest totaling $1.3 billion as of July 15, 2023[391] Item 3. Quantitative and Qualitative Disclosures About Market Risk The company's primary market risk exposures are interest rate, foreign exchange, and credit spread risks, with no material changes since December 31, 2022 - The company's main market risks are interest rate, foreign exchange, and credit spread risk, which affect the value of its investment portfolio and other financial instruments[399] - There were no material changes in market risk exposures since December 31, 2022[399] Item 4. Controls and Procedures The company concluded that its disclosure controls and procedures were effective as of June 30, 2023, with no material changes to internal control over financial reporting during the quarter - Management, including the CEO and CFO, concluded that the company's disclosure controls and procedures were effective as of the end of the reporting period[400] PART II OTHER INFORMATION This section provides disclosures on legal proceedings, updated risk factors, details on equity security sales, and a list of exhibits filed with the report Item 1. Legal Proceedings The company is defending against an adversary complaint filed by the Puerto Rico Oversight Board challenging the liens securing PREPA bonds, with the outcome uncertain - The company is involved in an adversary complaint filed by the Puerto Rico Oversight Board challenging the validity of liens securing PREPA bonds, defending against the action but unable to estimate any potential loss[233][235] Item 1A. Risk Factors No material changes to risk factors occurred since the 2022 Annual Report, except for updated details on the fiscal stress of public finance issuers, particularly the ongoing PREPA bankruptcy proceeding - A key risk factor is the fiscal stress of state, local, and territorial governments that have issued public finance obligations insured by the company[404] - The PREPA bankruptcy proceeding remains a significant risk, with National paying $18 million in claims in January 2023 and $119 million in July 2023 due to PREPA defaults, and the confirmation of a plan of adjustment not assured[407][408] Item 2. Unregistered Sales of Equity Securities and Use of Proceeds During Q2 2023, the company and its subsidiary repurchased 2,986,663 shares at an average price of $8.12, primarily under a new $100 million share repurchase program Share Repurchases - Q2 2023 | Month | Total Shares Purchased | Average Price Paid Per Share (in dollars) | | :--- | :--- | :--- | | April | 79,619 | $10.23 | | May | 1,871,055 | $7.91 | | June | 1,035,989 | $8.33 | | Total | 2,986,663 | $8.12 | - A new share repurchase program was approved on May 3, 2023, authorizing up to $100 million in purchases, with $77 million remaining available as of the end of Q2 2023[410] Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including CEO and CFO certifications and XBRL data files - Exhibits filed include CEO and CFO certifications under Sarbanes-Oxley Sections 302 and 906[411] - Interactive Data Files (XBRL) are included as part of the filing[411]