EX-99.1 2 a4879402ex991.txt MBIA INC. EXHIBIT 99.1 Exhibit 99.1 MBIA Inc. Reports 1 Percent Increase in First Quarter 2005 Earnings Per Share; Operating Income Per Share up 10 Percent ARMONK, N.Y.--(BUSINESS WIRE)--May 3, 2005--MBIA Inc. (NYSE: MBI), the holding company for MBIA Insurance Corporation, reported today that first quarter 2005 diluted earnings per share increased 1 percent to $1.43 per share, compared to $1.42 per share in the first quarter of 2004. Net income for the first quarter was $200.5 million, down 4 percent compared to $208.6 million in the first quarter of 2004. First quarter per share results in 2004 were positively impacted by $0.20 of net realized gains versus $0.01 of net realized gains in the first quarter of 2005. Diluted earnings per share information -------------------------------------- Three Months Ended March 31 ----------------------------- 2005 2004 --------------- ------------- Net income $1.43 $1.42 Net realized gains 0.01 0.20 Net gains (losses) on derivative instruments and foreign exchange 0.02 (0.05) --------------- ------------- Operating income (1) $1.40 $1.27 (1) Presented on the same basis as analysts' estimates For the first quarter of 2005 operating income, which excludes the effects of net realized gains, net unrealized gains and losses on derivative instruments and foreign exchange, increased 10 percent to $1.40 per share from $1.27 per share in the first quarter of 2004. Excluding refundings, first quarter 2005 operating income rose 12 percent to $1.24 per share from $1.11 per share in the same period of 2004. Gary Dunton, MBIA Chief Executive Officer, said, "MBIA reported acceptable financial and operating results for the first quarter. Despite a challenging market environment, new business production during the first quarter of 2005 was satisfactory, particularly in comparison to the weak production in last year's first quarter. We were able to capitalize on a series of excellent opportunities that met our pricing and underwriting standards. We remain confident in our ability to provide long-term value in the global capital markets even in light of current credit spreads and competition." Insurance Operations Adjusted direct premium (ADP), a non-GAAP measure, which includes both upfront premiums written and the present value of estimated installment premiums for new business writings and excludes premiums assumed or ceded, increased 130 percent to $317.6 million in the first quarter of 2005 from $138.0 million in the first quarter of 2004. The increase was primarily due to strong domestic production in both public finance and structured finance operations during 2005. MBIA - Adjusted Direct Premium (ADP) ($ in millions) Three Months Ended March 31 2005 2004 % Change --------- --------- --------- Global Public Finance United States $ 143.6 $ 55.2 160% Non-United States 7.6 3.7 103% -------- -------- --------- Total 151.2 58.9 157% Global Structured Finance United States 136.4 60.0 127% Non-United States 30.0 19.1 57% -------- -------- --------- Total 166.4 79.1 110% Total $ 317.6 $ 138.0 130% Global public finance ADP increased 157 percent in the first quarter of 2005 compared to very weak production in the first quarter of 2004. U.S. public finance production reflected solid expansion across all business lines with several large transactions in the transportation sector. International public finance saw a slight improvement in new business production, as this market continues to be uneven. Credit quality for global public finance transactions remained very high, with 92 percent of insured business written rated Single-A or above in 2005. Global structured finance ADP showed strong growth in the first quarter of 2005 compared to first quarter production in 2004, driven by an increase in domestic production. In global structured finance, 64 percent of insured business written in 2005 was rated Single-A or higher. Scheduled earned premiums in the first quarter of 2005 rose 5 percent to $169.9 million from $162.0 million in the first quarter of 2004. With fewer large international public finance transactions and heavy refunding activity over the last several quarters, the growth of scheduled earned premiums was slower than in 2004. Earned premiums from refundings were $36.4 million, down from the record $39.9 million in first quarter of 2004. Pre-tax net investment income in the first quarter of 2005, excluding net realized gains, was $119.1 million, a 2 percent decrease from $121.8 million in the same period of 2004. First quarter after-tax net investment income decreased 1 percent to $94.6 million in the first quarter of 2005, compared to $95.2 million in the first quarter of 2004, primarily due to a relatively constant level of invested assets. MBIA's advisory fees in the first quarter of 2005 were up 10 percent to $6.4 million from $5.9 million during the first quarter of 2004. Insurance expenses, consisting of the amortization of deferred acquisition costs and operating expenses, were up 5 percent for the first quarter to $45.5 million from $43.1 million in the first quarter of 2004. The GAAP expense ratio increased slightly to 22.0 percent in the first quarter of 2005, compared to 21.4 percent in the prior year period. MBIA's pre-tax operating income from insurance operations, which excludes the effects of net realized gains and net unrealized gains and losses on derivative instruments and foreign exchange, was flat at $266.0 million in the first quarter of 2005 compared to $267.0 million in the same period of 2004. Risk Management and Loss Reserves The company incurred $20.4 million in loss and loss adjustment expenses in the first quarter of 2005, a 5 percent increase compared to $19.4 million in last year's first quarter. The growth was driven by an increase in scheduled earned premiums, which is the basis for the company's loss reserve formula. Although there were no new case reserves established in the first quarter of 2005, total case incurred activity totaled $19.5 million. The insured portfolio continued to show improvement in credit quality during the first quarter of 2005. The portion of the portfolio rated below investment grade is now less than 2 percent. Investment Management Services The market value of quarterly average fixed-income assets under management was $41.6 billion in the first quarter of 2005, up 12.8 percent from $36.9 billion in the first quarter of last year. Pre-tax operating income from MBIA's investment management businesses, which excludes the effects of net realized gains and net unrealized gains and losses on derivative instruments and foreign exchange, increased 90 percent in the first quarter of 2005 to $22.4 million from $11.8 million in 2004 as a result of increased revenues and a non-recurring reduction in compensation expenses. Corporate Net corporate segment expenses, excluding the effects of net realized gains and losses, decreased 17 percent for the first quarter of 2005 to $17.8 million from $21.5 million in the same period last year. The decrease was due to a combination of higher net investment income and lower expenses, partially offset by an increase in interest expense during the first quarter of 2005. Gains and Losses In the first quarter of 2005, MBIA recorded net realized gains of $1.7 million for all business operations, compared to net realized gains of $44.3 million in the first quarter of 2004, due to the sale of a common stock investment. The company recorded pre-tax mark-to-market net unrealized gains on derivative instruments and foreign exchange of $5.2 million for all business operations in the first quarter of 2005, compared to pre-tax mark-to-market net unrealized losses of $10.7 million in the first quarter of 2004. Book Value and Adjusted Book Value MBIA's book value per share at the end of the first quarter was $47.18, down slightly from $47.20 at December 31, 2004. Although book value remained relatively unchanged, the effect of net income from operations was offset by the effect of repurchasing shares and a decrease in the unrealized appreciation of investments. Adjusted book value (ABV) per share, a non-GAAP measure, at March 31, 2005 rose 3 percent to $68.12 from $66.29 at December 31, 2004. ABV includes the after-tax effects of deferred premium revenue less prepaid reinsurance premiums and deferred acquisition costs, the present value of installment premiums, unrealized gains or losses on investment contract liabilities and a provision for loss and loss adjustment expenses. Share Repurchase During the first quarter of 2005, the company repurchased over 3.4 million shares at an average cost of $58.52 per share. An additional 1 million shares were repurchased in April 2005. The Company now has approximately 6.4 million shares remaining in the share buyback program, which was authorized by the Board of Directors in 2004. Conference Call MBIA will host a conference call for investors today at 11 a.m. EDT. The conference call will consist of brief comments by Nicholas Ferreri, MBIA Chief Financial Officer, followed by a question and answer session. The conference call will be Web cast live on MBIA's Web site at http://investor.mbia.com (then select "Conference Call"). Those who are unable to participate in the conference call may listen to a replay by dialing 1-800-396-1244 in the United States and 1-402-998-1607 outside the United States. A recording will also be available on MBIA's Web site approximately two hours after the end of the conference call. MBIA Inc., through its subsidiaries, is a leading financial guarantor and provider of specialized financial services. MBIA's innovative and cost-effective products and services meet the credit enhancement, financial and investment needs of its public and private sector clients, domestically and internationally. MBIA Inc.'s principal operating subsidiary, MBIA Insurance Corporation, has a financial strength rating of Triple-A from Moody's Investors Service, Standard & Poor's Ratings Services, Fitch Ratings, and Rating and Investment Information, Inc. Please visit MBIA's Web site at http://www.mbia.com. This news release contains forward-looking statements. Important factors such as general market conditions and the competitive environment could cause actual results to differ materially from those projected in these forward-looking statements. The company undertakes no obligation to revise or update any forward-looking statements to reflect changes in events or expectations. Explanation of Non-GAAP Financial Measures The following are explanations of why MBIA believes that the non-GAAP financial measures typically used in the company's press releases, which serve to supplement GAAP information, are meaningful to investors. Operating Income: The company believes operating income is a useful measurement of performance because it measures income from operations, unaffected by investment portfolio realized gains and losses, gains and losses on derivative instruments and foreign exchange and non-recurring items. Operating income is also provided to assist research analysts and investors who use this information in their analysis of the company. Operating Return on Equity (ROE): The company believes operating return on equity is a useful measurement of performance because it measures return on equity based upon income from operations, unaffected by investment portfolio realized gains and losses, gains and losses on derivative instruments and foreign exchange and non-recurring items. Operating return on equity is also provided to assist research analysts and investors who use this information in their analysis of the company. Adjusted Direct Premiums: The company believes adjusted direct premiums are a meaningful measure of the total value of the insurance business written during a reporting period since they represent the present value of all premiums collected and expected to be collected on policies closed during the period. As such, it gives investors an opportunity to measure the value of new business activities in a given period and compare it to new business activities in other periods. Other measures, such as premiums written and premiums earned, include the value of premiums resulting from business closed in prior periods and do not provide the same information to investors. Adjusted Book Value: The company believes the presentation of adjusted book value, which includes items that are expected to be realized in future periods, provides additional information that gives a comprehensive measure of the value of the company. Since the company expects these items to affect future results and, in general, they do not require any additional future performance obligation on the company's part, ABV provides an indication of the company's value in the absence of any new business activity. ABV is not a substitute for GAAP book value but does provide investors with additional information when viewed in conjunction with GAAP book value. MBIA INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS --------------------------- (dollars in thousands) March 31, December 31, 2005 2004 ------------ ------------ Assets ------ Investments: Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $20,476,640 and $18,802,894) $21,134,588 $19,679,905 Investments held-to-maturity, at amortized cost (fair value $7,120,369 and $7,535,787) 7,140,265 7,540,218 Investment agreement portfolio pledged as collateral, at fair value (amortized cost $744,071 and $713,704) 768,196 730,870 Short-term investments, at amortized cost 1,859,417 2,405,192 Other investments 258,949 261,865 ------------ ------------ Total investments 31,161,415 30,618,050 Cash and cash equivalents 544,484 366,236 Accrued investment income 336,904 312,208 Deferred acquisition costs 371,932 360,496 Prepaid reinsurance premiums 462,390 471,375 Reinsurance recoverable on unpaid losses 33,202 33,734 Goodwill 79,406 79,406 Property and equipment (net of accumulated depreciation) 113,124 114,692 Receivable for investments sold 100,865 67,205 Derivative assets 270,648 288,811 Other assets 282,295 315,197 ------------ ------------ Total assets $33,756,665 $33,027,410 ============ ============ Liabilities and Shareholders' Equity -------------------------------------------- Liabilities: Deferred premium revenue $3,238,851 $3,211,181 Loss and loss adjustment expense reserves 755,563 726,617 Investment agreements 9,316,470 8,678,036 Commercial paper 2,302,859 2,598,655 Medium-term notes 7,414,651 6,943,840 Variable interest entity floating rate notes 600,670 600,505 Securities sold under agreements to repurchase 686,131 647,104 Short-term debt 58,745 58,745 Long-term debt 1,325,460 1,332,540 Current income taxes 12,126 -- Deferred income taxes, net 573,849 610,545 Deferred fee revenue 24,355 26,780 Payable for investments purchased 201,138 94,609 Derivative liabilities 428,360 528,562 Other liabilities 381,426 390,620 ------------ ------------ Total liabilities 27,320,654 26,448,339 Shareholders' Equity: Common stock 156,242 155,608 Additional paid-in capital 1,449,944 1,410,799 Retained earnings 5,377,327 5,215,191 Accumulated other comprehensive income 500,516 611,173 Unearned compensation - restricted stock (56,206) (34,686) Treasury stock (991,812) (779,014) ------------ ------------ Total shareholders' equity 6,436,011 6,579,071 Total liabilities and shareholders' equity $33,756,665 $33,027,410 ============ ============ MBIA INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME --------------------------------- (dollars in thousands except per share amounts) Three Months Ended Year Ended March 31 December 31 ------------------------- ------------ 2005 2004 2004 ------------ ------------ ------------ Insurance operations Revenues: Gross premiums written $282,619 $204,693 $1,116,915 Ceded premiums (35,688) (30,732) (146,880) ------------ ------------ ------------ Net premiums written 246,931 173,961 970,035 Scheduled premiums earned 169,873 161,994 682,343 Refunding premiums earned 36,365 39,876 140,124 ------------ ------------ ------------ Premiums earned 206,238 201,870 822,467 Net investment income 119,146 121,841 474,415 Advisory fees 6,425 5,865 41,539 Net realized gains 211 46,293 77,582 Net gains (losses) on derivative instruments and foreign exchange (6,075) 1,070 7,389 ------------ ------------ ------------ Total insurance revenues 325,945 376,939 1,423,392 Expenses: Losses and LAE incurred 20,385 19,439 81,880 Amortization of deferred acquisition costs 16,293 15,586 64,290 Operating 29,166 27,526 116,413 ------------ ------------ ------------ Total insurance expenses 65,844 62,551 262,583 Insurance income 260,101 314,388 1,160,809 ------------ ------------ ------------ Investment management services Revenues 186,235 121,460 551,926 Net realized gains (losses) 3,194 (1,817) (4,120) Net gains (losses) on derivative instruments and foreign exchange 11,178 (11,733) (5,508) ------------ ------------ ------------ Total investment management services revenues 200,607 107,910 542,298 Interest expense 149,418 91,035 413,615 Expenses 14,377 18,587 76,912 ------------ ------------ ------------ Total investment management services expenses 163,795 109,622 490,527 ------------ ------------ ------------ Investment management services income 36,812 (1,712) 51,771 ------------ ------------ ------------ Municipal services Revenues 5,536 5,959 27,593 Net realized losses (85) (5) (81) Net gains (losses) on derivative instruments and foreign exchange 130 -- (279) ------------ ------------- ------------ Total municipal services revenues 5,581 5,954 27,233 Expenses 5,405 5,854 25,649 ------------ ------------ ------------ Municipal services income 176 100 1,584 ------------ ------------ ------------ Corporate Net investment income 7,927 2,120 8,446 Net realized losses (1,608) (220) (467) Interest expense 22,021 17,774 74,651 Corporate expenses 3,681 5,890 17,579 ------------ ------------ ------------ Corporate loss (19,383) (21,764) (84,251) ------------ ------------ ------------ Income from continuing operations before income taxes 277,706 291,012 1,129,913 Provision for income taxes 77,202 82,424 317,185 ------------ ------------ ------------ Income from continuing operations 200,504 208,588 812,728 Income (loss) from discontinued operations, net of tax -- 29 (602) Gain on sale of discontinued operations, net of tax -- -- 3,178 -------------------------- ------------ Income from discontinued operations -- 29 2,576 Net income $200,504 $208,617 $815,304 ============ ============ ============ Net income per common share: Basic $1.46 $1.45 $5.75 Diluted $1.43 $1.42 $5.63 Weighted-average common shares outstanding: Basic 137,258,739 143,608,056 141,861,225 Diluted 140,442,217 146,647,142 144,799,513 MBIA INC. AND SUBSIDIARIES Reconciliation of Adjusted Direct Premiums to Gross Premiums Written -------------------------------------------------------------------- (dollars in millions) Three Months Ended March 31 ------------------- 2005 2004 -------- -------- Adjusted direct premiums (1) $ 317.6 $ 138.0 Adjusted premiums assumed -- (2.9) -------- -------- Adjusted gross premiums 317.6 135.1 Present value of estimated future installment premiums (2) (175.8) (82.3) -------- -------- Gross upfront premiums written 141.8 52.8 Gross installment premiums received 140.8 151.9 -------- -------- Gross premiums written $ 282.6 $ 204.7 ======== ======== (1) A non-GAAP measure. (2) At March 31, 2005 the discount rate was 4.8% and at March 31, 2004 the discount rate was 4.7%. Components of Net Income per Share (1) -------------------------------------- Three Months Ended March 31 ------------------- 2005 2004 -------- -------- Net income $ 1.43 $ 1.42 Income from discontinued operations -- 0.00 --------- -------- Net income from continuing operations 1.43 1.42 Net realized gains 0.01 0.20 Net gains (losses) on derivative instruments and foreign exchange 0.02 (0.05) -------- -------- Operating income (2) $ 1.40 $ 1.27 ======== ======== (1)May not add due to rounding. (2)A non-GAAP measure. MBIA INC. AND SUBSIDIARIES Components of Adjusted Book Value per Share ------------------------------------------- March 31, 2005 December 31, 2004 ---------------------- ---------------------- Book value $47.18 $47.20 After-tax value of: Deferred premium revenue 15.43 14.97 Prepaid reinsurance premiums (2.20) (2.20) Deferred acquisition costs (1.77) (1.68) ----------- ---------- Net deferred premium revenue 11.46 11.09 Present value of installment premiums(1) 10.17 9.83 Unrealized gains on investment contract liabilities 2.12 0.88 Loss provision (2) (2.81) (2.71) ----------- ------------ Adjusted book value (3) $68.12 $66.29 =========== ============ (1) At March 31, 2005 and December 31, 2004, the discount rate was 4.8%. (2) The loss provision is calculated by applying 12% to the following items on an after-tax basis: (a) deferred premium revenue; (b) prepaid reinsurance premiums; and, (c) the present value of installment premiums. (3) A non-GAAP measure. CONSOLIDATED INSURANCE OPERATIONS --------------------------------- Selected Financial Data Computed on a Statutory Basis ----------------------------------------------------- (dollars in millions) March 31, December 2005 31, 2004 ----------- ------------ Capital and surplus $3,604.7 $3,394.7 Contingency reserve 2,655.3 2,666.0 ----------- ------------ Capital base 6,260.0 6,060.7 Unearned premium reserve 3,393.7 3,346.0 Present value of installment premiums (1) 2,135.0 2,108.3 ----------- ------------ Premium resources 5,528.7 5,454.3 Loss and loss adjustment expense reserves 287.6 272.5 Soft capital credit facilities 850.0 1,100.0 ----------- ------------ Total claims-paying resources $12,926.3 $12,887.5 =========== ============ Net debt service outstanding $886,242.5 $890,222.1 Capital ratio (2) 142:1 147:1 Claims-paying ratio (3) 81:1 81:1 (1) At March 31, 2005 and December 31, 2004, the discount rate was 4.8%. (2) Net debt service outstanding divided by the capital base. (3) Net debt service outstanding divided by the sum of the capital base, unearned premium reserve (after-tax), present value of installment premiums (after-tax), loss and loss adjustment expense reserves and soft capital credit facilities. CONTACT: MBIA Inc. Michael C. Ballinger, 914-765-3893