SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(X) QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the Quarter Ended June 30, 1996
OR
( ) TRANSITION REPORTS PURSUANT TO SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the Transition Period from __________ to __________
Commission File No. 1-9583 I.R.S. Employer Identification No. 06-1185706
MBIA INC.
A Connecticut Corporation
113 King Street, Armonk, N. Y. 10504
(914) 273-4545
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes __X__ NO _____
As of July 31, 1996 there were outstanding 43,007,274 shares of Common
Stock, par value $1 per share, of the registrant.
Page 1 of 17
<PAGE>
INDEX
PAGE
----
PART I FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
MBIA Inc. and Subsidiaries
Consolidated Balance Sheets - June 30, 1996
and December 31, 1995 3
Consolidated Statements of Income - Three months and
six months ended June 30, 1996 and 1995 4
Consolidated Statement of Changes in Shareholders' Equity
- Six months ended June 30, 1996 5
Consolidated Statements of Cash Flows
- Six months ended June 30, 1996 and 1995 6
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8 - 15
PART II OTHER INFORMATION, AS APPLICABLE
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
(2)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
------------------------ --------------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Investments:
Fixed-maturity securities held as available-for-sale
at fair value (amortized cost $3,735,457 and $3,428,986) $3,813,749 $3,652,621
Short-term investments, at amortized cost
(which approximates fair value) 228,445 198,035
Other investments 29,127 14,064
--------------- -------------
4,071,321 3,864,720
Municipal investment agreement portfolio held as available-for-sale
at fair value (amortized cost $3,102,712 and $2,645,828) 3,105,928 2,742,626
--------------- -------------
TOTAL INVESTMENTS 7,177,249 6,607,346
Cash and cash equivalents 11,652 23,258
Accrued investment income 98,676 87,016
Deferred acquisition costs 143,536 140,348
Prepaid reinsurance premiums 208,614 200,887
Goodwill (less accumulated amortization of $40,510 and $41,298) 104,045 106,569
Property and equipment, at cost (less accumulated depreciation
of $19,718 and $17,625) 47,064 46,030
Receivable for investments sold 10,212 6,100
Other assets 68,284 49,896
--------------- -------------
TOTAL ASSETS $7,869,332 $7,267,450
=============== =============
LIABILITIES AND SHAREHOLDERS' EQUITY
Liabilities:
Deferred premium revenue $1,728,845 $1,616,315
Loss and loss adjustment expense reserves 50,437 42,505
Municipal investment agreements 2,280,598 2,026,709
Municipal repurchase agreements 766,065 615,776
Long-term debt 373,955 373,900
Short-term debt 38,600 18,000
Deferred income taxes 170,038 246,736
Payable for investments purchased 98,724 10,695
Other liabilities 92,704 82,548
--------------- -------------
TOTAL LIABILITIES 5,599,966 5,033,184
--------------- -------------
Shareholders' 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--200,000,000;
issued shares--43,005,024 and 42,077,387 43,005 42,077
Additional paid-in capital 787,970 725,153
Retained earnings 1,387,035 1,261,051
Cumulative translation adjustment (964) 2,849
Unrealized appreciation of investments, net of
deferred income tax provision of $28,668 and $112,252 52,673 207,648
Unearned compensation--restricted stock (353) (426)
Treasury stock, at cost; shares--73,676 in 1995 --- (4,086)
--------------- -------------
TOTAL SHAREHOLDERS' EQUITY 2,269,366 2,234,266
--------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $7,869,332 $7,267,450
=============== =============
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
(3)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Three months ended Six months ended
June 30 June 30
---------------------- --------------------
1996 1995 1996 1995
---------- ---------- --------- ---------
<S> <C> <C> <C> <C>
Revenues
Insurance:
Gross premiums written $134,001 $106,343 $254,600 $ 177,177
Ceded premiums (11,914) (12,049) (26,629) (19,129)
---------- ---------- --------- ----------
Net premiums written 122,087 94,294 227,971 158,048
Increase in deferred premium revenue (60,021) (40,406) (105,553) (53,086)
---------- ---------- --------- ----------
Premiums earned (net of ceded
premiums of $9,682, $6,814,
$18,902 and $14,652) 62,066 53,888 122,418 104,962
Net investment income 61,473 53,991 120,571 106,828
Net realized gains 3,895 1,698 6,587 3,422
Investment management services:
Income 6,631 4,339 12,724 8,541
Net realized gains (losses) (34) (207) 934 (174)
Other 994 224 1,988 1,134
---------- ---------- --------- ----------
Total revenues 135,025 113,933 265,222 224,713
---------- ---------- --------- ----------
Expenses
Insurance:
Losses and loss adjustment 4,288 2,710 7,466 4,743
Policy acquisition costs, net 5,990 5,130 11,890 10,270
Operating 11,525 9,245 22,074 18,992
Investment management services 3,549 3,419 6,960 6,290
Interest 8,241 7,109 16,378 14,159
Other 602 554 1,050 971
---------- ---------- --------- ----------
Total expenses 34,195 28,167 65,818 55,425
---------- ---------- --------- ----------
Income before income taxes 100,830 85,766 199,404 169,288
Provision for income taxes 21,093 18,459 42,042 35,975
---------- ---------- --------- ----------
NET INCOME $ 79,737 $ 67,307 $ 157,362 $ 133,313
========== ========== ========= ==========
NET INCOME PER COMMON SHARE $ 1.84 $ 1.60 $ 3.65 $ 3.17
========== ========== ========= ==========
WEIGHTED AVERAGE NUMBER OF
COMMON SHARES AND COMMON STOCK
EQUIVALENTS OUTSTANDING 43,304,435 42,160,506 43,121,218 42,110,048
========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
(4)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (Unaudited)
For the six months ended June 30, 1996
(In thousands except per share amounts)
<TABLE>
<CAPTION>
Unearned
Common Stock Additional Cumulative Unrealized Compensation- Treasury Stock
---------------- Paid-in Retained Translation Appreciation Restricted ----------------
Shares Amount Capital Earnings Adjustment of Investments Stock Shares Amount
------- ------- ---------- ---------- ----------- -------------- ------------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance,
January 1, 1996 42,077 $42,077 $725,153 $1,261,051 $2,849 $207,648 $ (426) 74 $4,086
Net proceeds
from issuance
of shares 770 770 54,463 --- --- --- --- --- ---
Unearned
compensation-
restricted stock --- --- --- --- --- --- 73 --- ---
Exercise of stock
options 158 158 8,354 (1,757) --- --- --- (74) (4,086)
Net income --- --- --- 157,362 --- --- --- --- ---
Change in foreign
currency
translation --- --- --- --- (3,813) --- --- --- ---
Change in
unrealized
appreciation of
investments net
of change in
deferred income
taxes of $83,584 --- --- --- --- --- (154,975) --- --- ---
Dividends
(declared and
paid per common
share $.69) --- --- --- (29,621) --- --- --- --- ---
------ ------- -------- ---------- ----------- ------------ ------------ ------- --------
Balance,
June 30, 1996 43,005 $43,005 $787,970 $1,387,035 $ (964) $ 52,673 $ (353) --- $ ---
====== ======= ======== ========== =========== ============ ============ ======= ========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
(5)
<PAGE>
MBIA INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
<TABLE>
<CAPTION>
Six months ended
June 30
--------------------------
1996 1995
------------ ------------
<S> <C> <C>
Cash flows from operating activities:
Net income .................................................... $ 157,362 $ 133,313
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accrued investment income ....................... (11,660) (10,236)
Increase in deferred acquisition costs ...................... (3,188) (4,081)
Increase in prepaid reinsurance premiums .................... (7,727) (4,477)
Increase in deferred premium revenue ........................ 113,280 57,563
Increase in loss and loss adjustment expense reserves ....... 7,932 3,872
Depreciation ................................................ 2,135 1,881
Amortization of goodwill .................................... 2,524 2,560
Amortization of bond discount, net .......................... (9,471) (620)
Net realized gains on sale of investments ................... (7,521) (3,248)
Deferred income taxes ....................................... 6,886 6,092
Other, net .................................................. (11,616) 12,702
--------- ---------
Total adjustments to net income ............................. 81,574 62,008
--------- ---------
Net cash provided by operating activities ................... 238,936 195,321
--------- ---------
Cash flows from investing activities:
Purchase of fixed-maturity securities, net
of payable for investments purchased ........................ (698,356) (381,824)
Sale of fixed-maturity securities, net of
receivable for investments sold ............................. 334,469 237,019
Redemption of fixed-maturity securities, net of
receivable for investments redeemed ......................... 75,960 31,546
Purchase of short-term investments, net ....................... (15,264) (60,631)
Purchase of other investments, net ............................ (14,945) (807)
Purchases for municipal investment agreement
portfolio, net of payable for investments purchased ......... (970,773) (1,325,209)
Sales from municipal investment agreement
portfolio, net of receivable for investments sold ........... 580,883 673,343
Capital expenditures, net of disposals ........................ (3,180) (2,784)
--------- ---------
Net cash used by investing activities ....................... (711,206) (829,347)
--------- ---------
Cash flows from financing activities:
Net proceeds from issuance of common stock .................... 55,233 ---
Net proceeds from issuance of short-term debt ................. 20,600 90,700
Dividends paid ................................................ (29,276) (25,811)
Proceeds from issuance of municipal investment
agreements and municipal repurchase agreements .............. 1,053,077 1,059,574
Payments for drawdowns of municipal investment
agreements and municipal repurchase agreements .............. (649,811) (495,961)
Exercise of stock options ..................................... 10,841 4,958
--------- ---------
Net cash provided by financing activities ................... 460,664 633,460
--------- ---------
Net decrease in cash and cash equivalents .......................... (11,606) (566)
Cash and cash equivalents - beginning of period .................... 23,258 7,940
--------- ---------
Cash and cash equivalents - end of period .......................... $ 11,652 $ 7,374
========= =========
Supplemental cash flow disclosures:
Income taxes paid ............................................. $ 33,116 $ 26,483
Interest paid:
Municipal investment agreements and
municipal repurchase agreements ........................... $ 56,785 $ 50,109
Long-term debt .............................................. 15,810 13,288
Short-term debt ............................................. 323 556
</TABLE>
The accompanying notes are an integral part of the
consolidated financial statements.
(6)
<PAGE>
MBIA INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Basis of Presentation
The accompanying unaudited consolidated financial statements have been
prepared in accordance with the instructions to Form 10-Q and, accordingly, do
not include all of the information and disclosures required by generally
accepted accounting principles. These statements should be read in conjunction
with the consolidated financial statements and notes thereto included in Form
10-K for the year ended December 31, 1995 for MBIA Inc. and Subsidiaries (the
"Company"). The accompanying unaudited consolidated financial statements have
not been audited by independent accountants in accordance with generally
accepted auditing standards but in the opinion of management such financial
statements include all adjustments, consisting only of normal recurring
adjustments, necessary to summarize fairly the Company's financial position and
results of operations. The results of operations for the six months ended June
30, 1996 may not be indicative of the results that may be expected for the year
ending December 31, 1996. The December 31, 1995 condensed balance sheet data was
derived from audited financial statements, but does not include all disclosures
required by generally accepted accounting principles.
2. Dividends Declared
Dividends declared by the Company during the six months ended June 30, 1996
were $29.6 million.
(7)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
RESULTS OF OPERATIONS
- ---------------------
1996 AND 1995 - SECOND QUARTER RESULTS
- --------------------------------------
MBIA Inc.'s (the "Company" or "MBIA") 1996 second quarter net income
increased by 18% to $79.7 million compared with $67.3 million in 1995. Earnings
per share grew 15% to $1.84 from $1.60 in the second quarter of 1995.
Comparing 1996 with 1995, second quarter core earnings per share increased
by 12% to $1.62. Core earnings, which exclude the net income effects from
refundings and calls of insured issues, realized capital gains and losses,
accounting changes and other non-recurring items, are a more indicative measure
of MBIA's underlying profit trend. The increase in core earnings was primarily
due to the continued growth in core premiums earned and net investment income
generated by MBIA's insurance operations as well as from an increasing
contribution from investment management services business.
Book value at June 30, 1996 was $52.77 per share, down slightly from $53.19
per share at year-end 1995. This decrease reflected the decline in unrealized
gains generated by the Company's fixed-income portfolio resulting from the
increase in interest rates, partially offset by the Company's strong operating
results. Financial guarantee insurance companies refer to adjusted book value as
a more appropriate measure of their company's intrinsic value. Adjusted book
value is calculated by adding to book value the after-tax effects of (1) net
deferred premiums less deferred acquisition costs and (2) the present value of
future installment premiums on outstanding insurance policies. MBIA's adjusted
book value per share increased to $77.48 at June 30, 1996 compared with $76.56
at year-end 1995. With respect to adjusted book value, strong operating results
combined with new business written, offset the impact of the increase in
interest rates on the market value of the fixed-income portfolio.
Insurance Operations
- --------------------
MBIA's primary business is to guarantee principal and interest payments on
municipal bonds sold in the new issue and secondary markets. The Company also
provides financial guarantees for structured finance transactions,
investor-owned utility debt and obligations of high-quality financial
institutions. In addition, MBIA provides financial guarantees for similar
securities in the international markets. The Company is the leading provider of
financial guarantees in both domestic and international markets.
Gross premiums written ("GPW") as reported on the Company's income
statements reflect cash premium receipts during the period, which includes both
upfront premiums received for business originated in the period and installment
premiums received for installment-based insurance policies issued in current and
prior periods. GPW does not include the present value of future premiums
receivable for installment-based insurance policies issued in the period.
Although most of MBIA's premiums are collected upfront at policy issuance, MBIA
is writing an increasing proportion of installment premium business, and
estimates the aggregate present value of its future stream of installment
(8)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
premiums to be $258.0 million at June 30, 1996. To more accurately portray
year-to-year changes in new business production, the Company also discloses
adjusted gross premiums ("AGP"), which represent upfront premiums and the
estimated present value of current period and future installment premiums for
installment-based insurance policies issued in the period.
MBIA's total GPW for the second quarter of 1996 increased 26% to $134.0
million from $106.3 million in the second quarter of 1995. Total AGP increased
45% to $155.0 million from $106.8 million over the same period.
The overall long-term new issue municipal bond volume was $43.5 billion for
the second quarter of 1996, up 14% from $38.0 billion in the second quarter of
last year. The insured portion of new issue volume increased to a record 54%
from 49% in the second quarter of 1995. MBIA continued to lead the industry in
market share, capturing 39% of the insured market this quarter. Market data are
reported on a sale date basis while MBIA's financial results are computed from
closing date information. Typically, there can be a one- to four-week delay
between the sale date and closing date of an insured issue.
For the second quarter of 1996, total par value insured by MBIA for
domestic new issue and secondary market municipal insurance increased to $11.3
billion from $8.3 billion in the same period last year. Over the same periods,
municipal GPW increased 26% to $119.1 million from $94.9 million. Municipal AGP
also increased by 26% to $117.1 million from $92.8 million in the second quarter
of 1995.
MBIA reported substantial gains in its domestic new issue and secondary
market structured finance business insuring a record $4.7 billion of par value
in the second quarter of 1996, more than four times last year's second quarter.
Structured finance AGP at $24.2 million also exceeded 1995's second quarter by
more than four times. Structured finance GPW at $8.5 million reflected a 74%
increase over the second quarter of 1995.
MBIA's international operations insured $0.4 billion of new issue and
secondary market par value. GPW for international business decreased by 47% to
$2.8 million from $5.2 million in the second quarter of 1995. International AGP
decreased by 21% to $5.4 million from $6.8 million in the second quarter of
1995. These decreases were due to a large sovereign transaction insured in the
second quarter of 1995.
Ceded premiums to reinsurers from all insurance operations were $11.9
million in the second quarter of 1996, compared with $12.0 million in second
quarter 1995, representing 9% and 11% of GPW in the second quarters of 1996 and
1995, respectively. The higher rate of premium cessions in 1995 was the result
of two facultative reinsurance transactions.
Premiums received upfront are earned pro rata over the period of risk. Such
premiums are allocated to each bond maturity based on par amount and are earned
on a straight-line basis over the term of each maturity. Accordingly, the
portion of premiums earned on each policy in any given year represents a
relatively small percentage of the total upfront premium received. The balance
represents deferred premium revenue to be earned over the remaining life of the
insured bond issue.
(9)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Installment premiums are credited to the deferred premium revenue account
in the period in which such premiums are received, and they are recognized as
revenue over each installment period -- generally one year or less. The revenue
that the Company recognizes from the amortization of deferred premiums for each
period, net of the amortization of prepaid reinsurance premiums, is its premiums
earned for that period.
Premiums earned increased 15% to $62.1 million in the second quarter of
1996 from $53.9 million in the second quarter of 1995. Earned premiums from
scheduled amortization increased by 12% to $50.1 million over last year's second
quarter.
When an MBIA-insured bond issue is refunded or retired early, the
outstanding liability associated with the refunded or called portion is
extinguished and the related deferred premium revenue is earned immediately,
except for any portion which may be applied as a credit towards insuring the
refunding bond issue. Earned premiums generated by refunded and called bonds in
second quarter 1996 increased to $12.0 million from $9.1 million in the second
quarter of 1995. The amount of bond refundings and calls is influenced by a
variety of factors such as prevailing interest rates relative to the coupon
rates of the bond issue, the issuer's desire to modify bond covenants and
applicable regulations under the Internal Revenue Code.
The fair value of the Company's investment portfolio related to its
insurance operations was $4.0 billion as of June 30, 1996. This portfolio
generated net investment income of $61.5 million in the second quarter of 1996,
a 14% increase over the $54.0 million generated in the second quarter of 1995.
The increase was primarily the result of the growth of investments from
continued positive operating cash flows and the proceeds from the December, 1995
and February, 1996 debt and equity offerings. Net realized capital gains in
second quarter 1996 were $3.9 million, compared with $1.7 million in the prior
year's second quarter.
The Company's investment portfolio is comprised of very high-quality fixed-
income investments with an average credit quality rating of Double-A. The
portfolio's tax-exempt securities increased marginally to 73% of the portfolio
at June 30, 1996 compared with 72% at December 31, 1995.
The provision for losses and loss adjustment expenses during the second
quarter of 1996 was $4.3 million compared with $2.7 million in 1995's second
quarter, representing additions to the loss reserve consistent with the
Company's loss reserving methodology. The increase was due to the higher level
of business written in the second quarter of 1996 compared to the prior year's
second quarter. At June 30, 1996, $15.7 million of the $50.4 million loss and
loss adjustment expense reserve was allocated on a case basis compared with
$14.5 million of the $42.5 million reserve at year-end 1995. During the second
quarter of 1996 there were no new case reserves nor any material adjustments to
those reserves currently outstanding. At June 30, 1996 the Company's unallocated
general reserve was $34.7 million compared with $28.0 million at year-end 1995.
(10)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
In the second quarter of 1996, policy acquisition costs net of deferrals
were $6.0 million. The 17% increase for the period over 1995's second quarter
was consistent with the overall increase in earned premiums, as the percentage
of policy acquisition costs net of deferrals to earned premiums remained at 10%
for both periods. Policy acquisition costs are amortized over the period in
which the related premiums are earned. Other insurance operating expenses
increased to $11.5 million in the second quarter of 1996 from $9.2 million in
the prior year's second quarter.
In the second quarter of 1996, the Company incurred $8.2 million of
interest expense compared with $7.1 million in the second quarter of 1995. The
increase primarily resulted from the additional interest expense related to the
$75 million increase in MBIA's long-term debt in December, 1995.
The Company's effective tax rate decreased marginally in the second quarter
of 1996 to 20.9% compared with 21.5% in 1995.
Investment Management Services
- ------------------------------
Over the last six years, MBIA has developed investment management services
which capitalize on the Company's capabilities, reputation and marketplace
relationships.
MBIA Municipal Investors Service Corporation ("MBIA/MISC"), a wholly owned
subsidiary of the Company, provides cash management services for local
governments and school districts. As of June 30, 1996, MBIA/MISC had
approximately 1,380 clients and over $2.6 billion of client assets under
management compared with over $2.5 billion at year-end 1995. In addition,
MBIA/MISC provides fund administration services to over 200 clients with
invested assets of $107.6 million. MBIA/MISC offers its services in eleven
states and the Commonwealth of Puerto Rico and plans to continue to expand into
additional states.
Since 1993, MBIA Investment Management Corp. ("IMC"), another wholly owned
subsidiary of the Company, has provided investment agreements, guaranteed as to
principal and interest, for bond proceeds of states, municipalities and
municipal authorities. At June 30, 1996, aggregate principal and accrued
interest outstanding on investment agreements was $3.0 billion compared with
$2.6 billion at year-end 1995. The assets supporting IMC's investment agreement
liabilities are high-quality securities with an average credit quality rating of
Double-A and are recorded as a component of the Company's total investments.
In conducting its business, IMC may, from time to time, use derivative
financial instruments for hedging purposes as part of its overall management of
interest rate risk exposure. The use of such instruments must comply with the
Company's established risk management policies restricting their use to
prescribed limits, non-speculative purposes, and exposure to a market or index
that represents a class of investments approved as a direct investment under the
Company's existing investment guidelines. At June 30, 1996, the Company's
exposure to derivative financial instruments (interest rate contracts) was not
significant.
(11)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
In 1994, MBIA Capital Management Corp.("CMC"), (formerly MBIA Securities
Corp.), a wholly owned subsidiary, was established to provide investment
management services for MBIA's investment agreements, municipal cash management
and public pension funds. In first quarter 1996, portfolio management for the
majority of MBIA's insurance related investment portfolio was transferred to
CMC; completing the transition which began in 1995.
For the second quarter of 1996, the Company's investment management
services business contributed $6.6 million in operating revenues, a 53% increase
over the same period last year. Operating expenses increased by 4% to $3.5
million. Net realized capital losses for the second quarter of 1996 were $34
thousand compared to $207 thousand for the second quarter of 1995.
RESULTS OF OPERATIONS
- -----------------------
1996 AND 1995 - FIRST SIX MONTHS RESULTS
- ------------------------------------------
MBIA's 1996 first half net income increased by 18% to $157.4 million per share
compared with $133.3 million in the first half of 1995. Earnings per share grew
15% to $3.65 from $3.17 in the first half of 1995. Core earnings per share
increased by 12% in the first half of 1996 to $3.22. The increase in core
earnings was primarily due to the continued combined growth in core premiums
earned and net investment income.
Insurance Operations
- ----------------------
MBIA's total GPW for the first half of 1996 increased 44% to $254.6 million from
$177.2 million in the first half of 1995. Total AGP increased 57% to $284.7
million from $181.4 million over the same period.
The overall long-term new issue municipal bond volume was $80.6 billion for
the first half of 1996, up 25% from $64.3 billion in the first half of last
year. The insured portion of the market rose sharply to 53% from 42% in the
first half of 1995. MBIA continued to lead the industry in market share,
capturing 41% of the insured market in the first half of 1996.
For the first half of 1996, total par value insured by MBIA for domestic
new issue and secondary market municipal insurance increased to $20.4 billion
from $13.5 billion in the same period last year. Over the same period, municipal
GPW increased 34% to $205.9 million from $154.3 million. Municipal AGP increased
by 33% to $201.8 million from $151.3 million in the first half of 1995.
MBIA reported substantial gains in its domestic new issue and secondary
market structured finance business insuring a record $8.4 billion of par value
in the first half of 1996, a 175% gain over last year's first half. Structured
finance GPW at $27.8 million reflected a 166% increase over first half 1995.
Structured finance AGP totaled $52.5 million, up 239% over 1995's first half.
Structured finance GPW and AGP included $12.1 million of assumed premiums
related to an aggregate excess of loss agreement covering $190 million par of
first mortgage loans.
(12)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
MBIA's international operations insured $1.1 billion of new issue and
secondary market par value in the first half of 1996. GPW for international
business increased by 46% to $13.8 million from $9.3 million in the first half
of 1995. International AGP increased by 48% to $16.4 million from $11.0 million
in the first half of 1995.
Ceded premiums to reinsurers from all insurance operations were $26.6
million in the first half of 1996, compared with $19.1 million in first half
of 1995, representing approximately 11% of GPW in both periods.
Premiums earned increased 17% to $122.4 million in the first half of 1996
from $105.0 million in the first half of 1995. Earned premiums from scheduled
amortization increased by 13% to $98.9 million over last year's first half.
Earned premiums generated by refunded and called bonds in the first half of 1996
increased to $23.5 million from $17.1 million in the first half of 1995.
The Company's investment portfolio related to its insurance operations
generated net investment income of $120.6 million in the first half 1996, a 13%
increase over the $106.8 million generated in the first half of 1995. The
increase was primarily the result of the growth of investments from continued
positive operating cash flows and the proceeds from the December, 1995 and
February, 1996 debt and equity offerings. Average invested assets for the first
half of 1996 were $3.80 billion at amortized cost compared with $3.35 billion
for the first half of 1995. Net realized capital gains in the first half of 1996
were $6.6 million, compared with $3.4 million in the prior year's first half.
The provision for losses and loss adjustment expenses during the first half
of 1996 was $7.5 million compared with $4.7 million in 1995's first half,
representing additions to the loss reserve consistent with the Company's loss
reserving methodology. The increase was due to the higher level of business
written in the first half of 1996 compared to the same period last year. During
the first half of 1996 there were no new case reserves nor any material
adjustments to those reserves currently outstanding.
In the first half of 1996, policy acquisition costs net of deferrals were
$11.9 million. The 16% increase for the period over 1995's first half was
consistent with the overall increase in earned premiums, as the percentage of
policy acquisition costs net of deferrals to earned premiums remained at 10% for
both periods. Policy acquisition costs are amortized over the period in which
the related premiums are earned. Other insurance operating expenses increased by
16% to $22.1 million in the first half of 1996 from $19.0 million in the prior
year's first half.
In the first half of 1996, the Company incurred $16.4 million of interest
expense compared with $14.2 million in the first half of 1995. The increase
primarily resulted from the additional interest expense related to the $75
million increase in MBIA's long-term debt in December 1995.
The Company's effective tax rate decreased marginally in the first half of
1996 to 21.1% compared with 21.3% in 1995.
(13)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
Investment Management Services
- ------------------------------
For the first half of 1996, the Company's investment management services
business contributed $12.7 million in operating revenues, a 49% increase over
the same period last year. Operating expenses increased by 11% to $7.0 million.
Net realized capital gains for the first half of 1996 were $0.9 million compared
to the first half of 1995 when there were $174 thousand of realized losses for
the investment management services business.
LIQUIDITY AND CAPITAL RESOURCES
- -------------------------------
At June 30, 1996, the fair value of the Company's consolidated investment
portfolio was $7.2 billion, an increase of 9% from $6.6 billion at year-end
1995. The overall increase was caused by strong operating cash flows and the $55
million of net proceeds from MBIA's public offering of common stock in February,
1996, partially offset by the decrease in unrealized gains caused by the rise in
interest rates during the period.
The Company's fixed-income investment portfolio has been classified as
available-for-sale in accordance with SFAS 115. The difference between fair
value and amortized cost is primarily related to changes in interest rates, and
if the portfolio is held to maturity, the Company expects to realize an amount
substantially equal to amortized cost.
MBIA Corp.'s liquidity position remained strong, as net cash flow provided
by its operations aggregated $300 million in the first half of 1996, a 36%
increase from $221 million generated in the first half of 1995. The Company's
liquidity is in part dependent upon MBIA Corp.'s ability to pay dividends to the
Company. MBIA Corp.'s net income, consisting of premiums earned and investment
income less losses and expenses, is a source of continuing additions to earned
surplus and dividend-paying capability. Under New York state insurance law,
without prior approval of the superintendent of the state insurance department,
MBIA Corp. may pay a dividend only from earned surplus subject to the
maintenance of a minimum capital requirement. The dividends in any 12-month
period may not exceed the lesser of 10% of its policyholders' surplus as shown
on its last filed statutory-basis financial statements or adjusted net
investment income, as defined, for such 12-month period. In the first half of
1996, MBIA Corp. paid no dividends and at June 30, 1996 had approximately $98
million available for payment of future dividends to the Company without
requiring prior approval.
MBIA Corp. has an irrevocable standby line of credit with a group of major
banks in the amount of $650 million which provides funds for the payment of
claims in the event that severe losses should occur. The line of credit expires
on September 30, 2002 but may be renewed annually by the bank group for a period
to extend the term to seven years beyond its annual renewal date. For general
corporate purposes or to further facilitate the immediate payment of claims,
should they occur, the Company and MBIA Corp. maintain short-term liquidity
facilities totaling $300 million with a group of major banks. At June 30, 1996,
there were $39 million outstanding under these facilities.
(14)
<PAGE>
MBIA INC. AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS (CONTINUED)
MBIA Corp. also maintains a high degree of liquidity within its investment
portfolio in the form of readily marketable high-quality fixed-income securities
and short-term investments. In management's opinion, the capital resources of
MBIA Corp. represented by the liquidity of its investment portfolio, its annual
cash flows from operations and bank lines of credit are more than adequate to
meet the Company's expected cash requirements.
In February 1996, the Company completed a public offering of 3.9 million
shares of the Company's common stock, of which 0.8 million shares were new
shares offered by the Company. The Company realized $55 million in new capital
from the offering.
(15)
<PAGE>
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits
11. Computation of Earnings Per Share Assuming Full Dilution
27. Financial Data Schedule
99. Additional Exhibits - MBIA Insurance Corporation and
Subsidiaries Consolidated Financial Statements
(b) Reports on Form 8-K - No reports on Form 8-K were filed in this quarter.
(16)
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
MBIA INC.
----------------------------
Registrant
Date: August 14, 1996 /s/ Julliette S. Tehrani
- ------------------------------ -----------------------------
Julliette S. Tehrani
Senior Vice President,
Chief Financial Officer
Date: August 14, 1996 /s/ Elizabeth B. Sullivan
- ------------------------------ -----------------------------
Elizabeth B. Sullivan
Vice President,
Controller
(Principal Accounting Officer)
(17)
EXHIBIT 11
MBIA INC. AND SUBSIDIARIES
COMPUTATION OF EARNINGS PER SHARE ASSUMING FULL DILUTION
(In thousands except per share amounts)
Three months ended Six months ended
June 30 June 30
----------------- --------------------
1996 1995 1996 1995
------- ------- -------- --------
Net income $79,737 $67,307 $157,362 $133,313
======= ======= ======== ========
Fully diluted shares:
Average number of common
shares outstanding 42,901 41,705 42,695 41,667
Assumed exercise of dilutive
stock options 439 502 456 515
------- ------- -------- --------
43,340 42,207 43,151 42,182
======= ======= ======== ========
Earnings per share assuming
full dilution $1.84 $1.59 $3.65 $3.16
======= ======= ======== ========
<TABLE> <S> <C>
<ARTICLE> 7
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> JUN-30-1996
<DEBT-HELD-FOR-SALE> 3,813,749
<DEBT-CARRYING-VALUE> 0
<DEBT-MARKET-VALUE> 0
<EQUITIES> 0
<MORTGAGE> 0
<REAL-ESTATE> 0
<TOTAL-INVEST> 7,177,249
<CASH> 11,652
<RECOVER-REINSURE> 0
<DEFERRED-ACQUISITION> 143,536
<TOTAL-ASSETS> 7,869,332
<POLICY-LOSSES> 50,437
<UNEARNED-PREMIUMS> 1,728,845
<POLICY-OTHER> 0
<POLICY-HOLDER-FUNDS> 0
<NOTES-PAYABLE> 412,555
<COMMON> 43,005
0
0
<OTHER-SE> 2,226,361
<TOTAL-LIABILITY-AND-EQUITY> 7,869,332
122,418
<INVESTMENT-INCOME> 120,571
<INVESTMENT-GAINS> 6,587
<OTHER-INCOME> 15,646
<BENEFITS> 7,466
<UNDERWRITING-AMORTIZATION> 11,890
<UNDERWRITING-OTHER> 22,074
<INCOME-PRETAX> 199,404
<INCOME-TAX> 42,042
<INCOME-CONTINUING> 157,362
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 157,362
<EPS-PRIMARY> 3.65
<EPS-DILUTED> 3.65
<RESERVE-OPEN> 0
<PROVISION-CURRENT> 0
<PROVISION-PRIOR> 0
<PAYMENTS-CURRENT> 0
<PAYMENTS-PRIOR> 0
<RESERVE-CLOSE> 0
<CUMULATIVE-DEFICIENCY> 0
</TABLE>
MBIA INSURANCE CORPORATION
AND SUBSIDIARIES
CONSOLIDATED FINANCIAL STATEMENTS
AS OF JUNE 30, 1996 AND DECEMBER 31, 1995
AND FOR THE PERIODS ENDED JUNE 30, 1996 AND 1995
<PAGE>
MBIA INSURANCE CORPORATION
AND SUBSIDIARIES
I N D E X
PAGE
Consolidated Balance Sheets -
June 30, 1996 (Unaudited) and December 31, 1995 (Audited) ............ 3
Consolidated Statements of Income -
Three months and six months ended June 30, 1996
and 1995 (Unaudited) ............................................... 4
Consolidated Statement of Changes in Shareholder's Equity -
Six months ended June 30, 1996 (Unaudited) ........................... 5
Consolidated Statements of Cash Flows -
Six months ended June 30, 1996 and 1995 (Unaudited) .................. 6
Notes to Consolidated Financial Statements (Unaudited) ................... 7
-2-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
June 30, 1996 December 31, 1995
--------------- ------------------
(Unaudited) (Audited)
ASSETS
<S> <C> <C>
Investments:
Fixed-maturity securities held as available-for-sale
at fair value (amortized cost $3,735,457 and $3,428,986) ...... $3,813,749 $3,652,621
Short-term investments, at amortized cost
(which approximates fair value) ............................... 219,945 198,035
Other investments ............................................... 13,781 14,064
---------- ----------
TOTAL INVESTMENTS ........................................... 4,047,475 3,864,720
Cash and cash equivalents ........................................... 4,649 2,135
Accrued investment income ........................................... 64,494 60,247
Deferred acquisition costs .......................................... 143,536 140,348
Prepaid reinsurance premiums ........................................ 208,614 200,887
Goodwill (less accumulated amortization of $39,814 and $37,366) ..... 103,166 105,614
Property and equipment, at cost (less accumulated depreciation
of $13,540 and $12,137) ......................................... 42,845 41,169
Receivable for investments sold ..................................... 1,430 5,729
Securities purchased under agreement to resell ...................... 36,750 ---
Other assets ........................................................ 37,614 42,145
---------- ----------
TOTAL ASSETS ................................................ $4,690,573 $4,462,994
========== ==========
LIABILITIES AND SHAREHOLDER'S EQUITY
Liabilities:
Deferred premium revenue ........................................ $1,728,845 $1,616,315
Loss and loss adjustment expense reserves ....................... 50,437 42,505
Deferred income taxes ........................................... 168,981 212,925
Payable for investments purchased ............................... 30,857 10,695
Securities sold under agreement to repurchase ................... 36,750 ---
Other liabilities ............................................... 72,506 54,682
---------- ----------
TOTAL LIABILITIES ........................................... 2,088,376 1,937,122
---------- ----------
Shareholder's Equity:
Common stock, par value $150 per share; authorized,
issued and outstanding - 100,000 shares ....................... 15,000 15,000
Additional paid-in capital ...................................... 1,030,998 1,021,584
Retained earnings ............................................... 1,506,726 1,341,855
Cumulative translation adjustment ............................... (1,109) 2,704
Unrealized appreciation of investments, net of deferred
income tax provision of $27,542 and $78,372 .................... 50,582 144,729
---------- ----------
TOTAL SHAREHOLDER'S EQUITY .................................. 2,602,197 2,525,872
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDER'S EQUITY .................. $4,690,573 $4,462,994
========== ==========
</TABLE>
The accompanying notes are an integral part
of the consolidated financial statements.
-3-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (Unaudited)
(Dollars in thousands)
Three months ended Six months ended
June 30 June 30
------------------ -------------------
1996 1995 1996 1995
-------- -------- -------- --------
Revenues:
Gross premiums written $134,443 $106,665 $255,454 $177,777
Ceded premiums (11,914) (12,049) (26,629) (19,129)
-------- -------- -------- --------
Net premiums written 122,529 94,616 228,825 158,648
Increase in deferred premium revenue (60,021) (40,406) (105,553) (53,086)
-------- -------- -------- --------
Premiums earned (net of ceded
premiums of $9,682, $6,814
$18,902 and $14,652) 62,508 54,210 123,272 105,562
Net investment income 61,653 53,783 120,656 106,848
Net realized gains 3,895 1,698 6,587 3,422
Other income 354 224 1,323 1,132
-------- -------- -------- --------
Total revenues 128,410 109,915 251,838 216,964
-------- -------- -------- --------
Expenses:
Losses and loss adjustment expenses 4,288 2,710 7,466 4,743
Policy acquisition costs, net 5,990 5,130 11,890 10,270
Underwriting and operating expenses 11,777 9,247 22,326 18,999
-------- -------- -------- --------
Total expenses 22,055 17,087 41,682 34,012
-------- -------- -------- --------
Income before income taxes 106,355 92,828 210,156 182,952
Provision for income taxes 22,786 20,604 45,285 40,080
-------- -------- -------- --------
Net income $83,569 $72,224 $164,871 $142,872
======== ======== ======== ========
The accompanying notes are an integral part of the consolidated
financial statements.
-4-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDER'S EQUITY (Unaudited)
For the six months ended June 30, 1996
(Dollars in thousands except per share amounts)
<TABLE>
<CAPTION>
Common Stock Additional Cumulative Unrealized
------------------------- Paid-In Retained Translation Appreciation
Shares Amount Capital Earnings Adjustment of Investments
---------- ---------- ---------- ---------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, January 1, 1996 ............... 100,000 $15,000 $1,021,584 $1,341,855 $ 2,704 $144,729
Exercise of stock options .............. -- -- 3,740 -- -- --
Net income ............................. -- -- -- 164,871 -- --
Change in foreign
currency transactions ................ -- -- -- -- (3,813) --
Change in unrealized
appreciation of
investment net of change
in deferred income taxes
of $50,830 ........................... -- -- -- -- -- (94,147)
Tax reduction related to
tax sharing agreement
with MBIA Inc. ....................... -- -- 5,674 -- -- --
---------- ---------- ---------- ---------- ---------- ----------
Balance, June 30, 1996 ................ 100,000 $15,000 $1,030,998 $1,506,726 $(1,109) $ 50,582
========== ========== ========== ========== ========== ==========
</TABLE>
The accompanying notes are an integral part of the consolidated
financial statements.
-5-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(Dollars in thousands)
Six Months Ended
June 30
---------------------
1996 1995
--------- ---------
Cash flows from operating activities:
Net income ............................................. $164,871 $142,872
Adjustments to reconcile net income to net cash
provided by operating activities:
Increase in accrued investment income ................ (4,247) (2,129)
Increase in deferred acquisition costs ............... (3,188) (4,081)
Increase in prepaid reinsurance premiums ............. (7,727) (4,477)
Increase in deferred premium revenue ................. 113,280 59,123
Increase in loss and loss adjustment expense reserves. 7,932 3,872
Depreciation ......................................... 1,442 1,295
Amortization of goodwill ............................. 2,448 2,465
Amortization of bond discount, net ................... (2,870) (620)
Net realized gains on sale of investments ............ (6,587) (3,422)
Deferred income taxes ................................ 6,886 6,092
Other, net ........................................... 27,690 20,094
--------- --------
Total adjustments to net income ...................... 135,059 78,212
--------- --------
Net cash provided by operating activities ............ 299,930 221,084
--------- --------
Cash flows from investing activities:
Purchase of fixed-maturity securities, net
of payable for investments purchased ................. (698,356) (381,468)
Sale of fixed-maturity securities, net of
receivable for investments sold ...................... 334,470 237,019
Redemption of fixed-maturity securities,
net of receivable for investments redeemed ........... 75,960 31,546
Purchase of short-term investments, net ................ (6,763) (60,631)
Securities purchased under agreement to resell ......... (36,750) ---
Sale (purchase) of other investments, net .............. 402 (807)
Capital expenditures, net of disposals ................. (3,129) (2,326)
--------- --------
Net cash used in investing activities ................ (334,166) (176,667)
--------- --------
Cash flows from financing activities:
Dividends paid ......................................... --- (43,500)
Securities sold under agreement to repurchase .......... 36,750 ---
--------- --------
Net cash provided (used) by financing activities ..... 36,750 (43,500)
--------- --------
Net increase in cash and cash equivalents ................ 2,514 917
Cash and cash equivalents - beginning of period .......... 2,135 1,332
--------- --------
Cash and cash equivalents - end of period ................ $ 4,649 $ 2,249
========= ========
Supplemental cash flow disclosures:
Income taxes paid ...................................... $ 32,978 $ 26,201
The accompanying notes are an integral part of the consolidated
financial statements.
-6-
<PAGE>
MBIA INSURANCE CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. BASIS OF PRESENTATION
- ----------------------------
The accompanying consolidated financial statements are unaudited and
include the accounts of MBIA Insurance Corporation and its Subsidiaries (the
"Company"). The statements do not include all of the information and disclosures
required by generally accepted accounting principles. These statements should be
read in conjunction with the Company's consolidated financial statements and
notes thereto for the year ended December 31, 1995. The accompanying
consolidated financial statements have not been audited by independent
accountants in accordance with generally accepted auditing standards but in the
opinion of management such financial statements include all adjustments,
consisting only of normal recurring adjustments, necessary to summarize fairly
the Company's financial position and results of operations. The results of
operations for the six months ended June 30, 1996 may not be indicative of the
results that may be expected for the year ending December 31, 1996. The December
31, 1995 condensed balance sheet data was derived from audited financial
statements, but does not include all disclosures required by generally accepted
accounting principles.
2. Dividends Declared
- ---------------------
No dividends were declared by the Company during the six months ended June
30, 1996.
-7-
