SCHEDULE II

MBIA INC. (PARENT COMPANY)

CONDENSED BALANCE SHEETS

(In millions except share and per share amounts)


	December 31, 2012		December 31, 2011
Assets
Investments:
Fixed-maturity securities held as available-for-sale, at fair value (amortized cost $825 and $1,989)	$	843	$	1,809
Fixed-maturity securities at fair value		13		96
Investments pledged as collateral, at fair value (amortized cost $510 and $623)		443		543
Short-term investments held as available-for-sale, at fair value (amortized cost $235 and $648)		236		643
Other investments		4		83

Total investments		1,539		3,174
Cash and cash equivalents		92		132
Investment in wholly-owned subsidiaries		4,127		3,410
Deferred income taxes, net		581		114
Other assets		183		137

Total assets	$	6,522	$	6,967

Liabilities and Shareholders’ Equity

Liabilities:
Investment agreements		893		1,523
Securities sold under agreements to repurchase		32		669
Long-term debt		723		900
Affiliate loans payable		1,681		1,738
Derivative liabilities		—		356
Other liabilities		20		81

Total liabilities		3,349		5,267

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—400,000,000; issued shares—277,405,039 and 274,896,162		277		275
Additional paid-in capital		3,076		3,072
Retained earnings		2,039		805
Accumulated other comprehensive income (loss), net of deferred tax of $26 and $134		56		(176)
Treasury stock, at cost—81,733,530 and 81,752,966 shares		(2,275)		(2,276)

Total shareholders’ equity of MBIA Inc.		3,173		1,700

Total liabilities and shareholders’ equity	$	6,522	$	6,967

The condensed financial statements should be read in conjunction with the

consolidated financial statements and notes thereto and the accompanying notes.

SCHEDULE II

MBIA INC. (PARENT COMPANY)

CONDENSED STATEMENTS OF OPERATIONS

(In millions)


	Years ended December 31,
	2012		2011		2010
Revenues:
Net investment income	$	60	$	90	$	122
Net gains (losses) on financial instruments at fair value and foreign exchange		(119)		(278)		(117)
Investment losses related to other-than-temporary impairments:
Investment losses related to other-than-temporary impairments		(52)		(20)		(206)
Other-than-temporary impairments recognized in accumulated other comprehensive income (loss)		(7)		(13)		147

Net investment losses related to other-than-temporary impairments		(59)		(33)		(59)
Net gains (losses) on extinguishment of debt		(2)		—		(1)
Other net realized gains (losses)		6		(17)		1

Total revenues		(114)		(238)		(54)

Expenses:
Operating		40		29		31
Interest		155		162		200

Total expenses		195		191		231

Gain (loss) before income taxes and equity in earnings of subsidiaries		(309)		(429)		(285)
Provision (benefit) for income taxes		(781)		(286)		(183)

Gain (loss) before equity in earnings of subsidiaries		472		(143)		(102)
Equity in net income (loss) of subsidiaries		762		(1,233)		99

Net income (loss)	$	1,234	$	(1,376)	$	(3)

The condensed financial statements should be read in conjunction with the

consolidated financial statements and notes thereto and the accompanying notes.

SCHEDULE II

MBIA INC. (PARENT COMPANY)

CONDENSED STATEMENTS OF COMPREHENSIVE INCOME

(In millions)


	Years ended December 31,
	2012		2011		2010
Net income	$	1,234	$	(1,376)	$	(3)
Other comprehensive income (loss):
Unrealized gains (losses) on available-for-sale securities:
Unrealized gains (losses) arising during the period, net of tax of $35, $60 and $93		128		234		382
Less: Reclassification adjustments for (gains) losses included in net income (loss), net of tax of $29, $16 and $77		54		30		143

Unrealized gains (losses) on available-for-sale securities, net		182		264		525

Other-than-temporary impairments on available-for-sale securities:
Other-than-temporary impairments arising during the period, net of tax of $13, $14 and $26		25		27		(48)
Less: Reclassification adjustments for other-than-temporary impairments included in net income (loss), net of tax of $11, $10 and $28		20		19		52

Other-than-temporary impairments on available-for-sale securities, net		45		46		4

Unrealized gains (losses) on derivative instruments:
Unrealized gains (losses) on derivative instruments arising during the period, net of tax of $1, $2 and $2		2		(5)		(3)
Less: Reclassification adjustments for (gains) losses included in net income (loss), net of tax of $10, $5 and $9		18		10		17

Unrealized gains (losses) on derivative instruments, net		20		5		14
Foreign currency translation		(15)		(33)		(61)

Total other comprehensive income (loss)		232		282		482

Comprehensive income (loss)	$	1,466	$	(1,094)	$	479

The condensed financial statements should be read in conjunction with the

consolidated financial statements and notes thereto and the accompanying notes.

SCHEDULE II

MBIA INC. (PARENT COMPANY)

CONDENSED STATEMENTS OF CASH FLOWS

(In millions)


	Years ended December 31,
	2012		2011		2010
Cash flows from operating activities:
Fees and reimbursements received	$	5	$	31	$	—
Investment income received		118		89		145
Operating expenses paid		(43)		(30)		(28)
Interest paid, net of interest converted to principal		(101)		(107)		(115)
Income taxes (paid) received		224		353		149

Net cash provided (used) by operating activities		203		336		151

Cash flows from investing activities:
Purchase of fixed-maturity securities		(1,017)		(3,737)		(6,259)
Sale and redemption of fixed-maturity securities		2,370		4,651		7,288
Sale (purchase) of short-term investments, net		375		251		363
Sale (purchase) of other investments, net		107		81		55
(Payments) proceeds for derivative settlements		(207)		(85)		16
Collateral (to) from swap counterparty		(285)		—		166
Contributions to subsidiaries		(12)		—		(35)
Advances to subsidiaries, net		1		(19)		(21)

Net cash provided (used) by investing activities		1,332		1,142		1,573

Cash flows from financing activities:
Proceeds from investment agreements		31		65		39
Payments for drawdowns of investment agreements		(679)		(500)		(735)
Payments for securities sold under agreements to repurchase		(639)		(835)		(618)
Payments for retirement of debt		(180)		(70)		(43)
Payments for affiliate loans		(109)		(37)		(405)
Purchase of treasury stock		—		(50)		(30)
Restricted stock awards settlements, net		1		(2)		2

Net cash provided (used) by financing activities		(1,575)		(1,429)		(1,790)

Net increase (decrease) in cash and cash equivalents		(40)		49		(66)
Cash and cash equivalents—beginning of period		132		83		149

Cash and cash equivalents—end of period	$	92	$	132	$	83

Reconciliation of net income (loss) to net cash provided (used) by operating activities:
Net income (loss)	$	1,234	$	(1,376)	$	(3)
Adjustments to reconcile net income (loss) to net cash provided (used) by operating activities:
Change in:
Intercompany accounts receivable		(9)		(10)		41
Current income taxes		57		124		56
Equity in earnings of subsidiaries		(762)		1,233		(99)
Dividends from subsidiaries		60		46		19
Net investment losses related to other-than-temporary impairments		59		33		59
Net (gains) losses on financial instruments at fair value and foreign exchange		119		278		117
Other net realized (gains) losses		(6)		17		(1)
Deferred income tax benefit		(613)		(85)		(90)
(Gains) losses on extinguishment of debt		2		—		1
Other operating		62		76		51

Total adjustments to net income (loss)		(1,031)		1,712		154

Net cash provided (used) by operating activities	$	203	$	336	$	151

The condensed financial statements should be read in conjunction with the

consolidated financial statements and notes thereto and the accompanying notes.

SCHEDULE II

MBIA INC. (PARENT COMPANY)

NOTES TO CONDENSED FINANCIAL STATEMENTS

1. Condensed Financial Statements

Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. It is suggested that these condensed financial statements be read in conjunction with the Company’s consolidated financial statements and the notes thereto.

The activities of MBIA Inc. consist of general corporate activities and funding activities, which principally include holding and managing investments, servicing outstanding corporate debt, investment agreements issued by MBIA Inc. and its subsidiaries, and posting collateral under investment agreement and derivative contracts.

MBIA Inc. is subject to the same liquidity risks and uncertainties as described in footnote 1 to the Company’s consolidated financial statements. As of December 31, 2012, MBIA Inc. had $170 million of cash and highly liquid assets available for general corporate liquidity purpose, and $69 million of cash and liquid assets not pledged as collateral in its funding activities.

2. Significant Accounting Policies

MBIA Inc. (the “Parent Company”) carries its investments in subsidiaries under the equity method.

Certain amounts have been reclassified in prior years’ financial statements to conform to the current presentation. This includes the reclassification of amounts from “Medium-term notes” to “Affiliate loans payable” on the Parent Company’s balance sheet. This reclassification had no impact on total revenues, expenses, assets, liabilities, or shareholders’ equity for all periods presented.

Previously, the Parent Company reported its statements of cash flows using the indirect method. The indirect method uses accrual accounting information to present the cash flows from operations. Effective January 1, 2012, the Parent Company elected to present its consolidated statements of cash flows using the direct method. The direct method uses actual cash flow information from the Parent Company’s operations, rather than using accrual accounting values. Using either the direct or indirect method, total cash flows from operations are consistent. In addition, the presentation of cash flows from investing and financing activities using either the direct or indirect method are consistent. The change to the direct method for calculating and presenting cash flows from operations was implemented retroactively. Use of the direct method requires a reconciliation of net income to cash flows from operations. This reconciliation is provided as a supplement directly beneath the statements of cash flows.

3. Dividends from Subsidiaries

During 2012, Optinuity Alliance Resource Corporation declared and paid dividends of $53 million to MBIA Inc., Asset Finance declared and paid dividends of $6 million to MBIA Inc. and Euro Asset Acquisition Limited declared and paid dividends of $1 million to MBIA Inc.

During 2011, Optinuity Alliance Resource Corporation declared and paid dividends of $38 million to MBIA Inc. and Euro Asset Acquisition Limited declared and paid dividends of $8 million to MBIA Inc.

4. Obligations under Investment Agreements

The investment agreement business, as described in footnotes 2 and 10 to the Company’s consolidated financial statements, is conducted by both MBIA Inc. and its wholly owned subsidiary, MBIA Investment Management Corp.

5. Pledged Collateral

Substantially all of the obligations under investment agreements require MBIA Inc. to pledge securities as collateral. As of December 31, 2012 and 2011, the fair value of securities pledged as collateral with respect to these investment agreements approximated $318 million and $428 million, respectively. The Parent Company’s collateral as of December 31, 2012, consisted principally of mortgage-backed securities, corporate obligations, and U.S. Treasury and government agency bonds, and was primarily held with major U.S. banks. Additionally, the Parent Company pledged money market securities as collateral under investment agreements in the amount of $144 million and $224 million as of December 31, 2012 and 2011, respectively.

Under derivative contracts entered into by MBIA Inc., collateral postings are required by either MBIA Inc. or the counterparty when the aggregate market value of derivative contracts entered into with the same counterparty exceeds a predefined threshold. As of December 31, 2012, MBIA Inc. did not post securities to derivative counterparties. As of December 31, 2011, MBIA Inc. pledged securities with a fair value of $470 million to derivative counterparties.

6. Affiliate Loans Payable

Affiliate loans payable consists of loans payable to MBIA Global Funding, LLC (“GFL”). GFL raises funds through the issuance of medium-term notes with varying maturities, which are, in turn, guaranteed by MBIA Insurance Corporation. GFL lends the proceeds of these medium-term note issuances to MBIA Inc. (“GFL Loans”). MBIA Inc. invests the proceeds of the GFL Loans in eligible investments, which consisted of investment grade securities at the time of purchase with a minimum average double-A credit quality rating. Included within “Securities sold under agreements to repurchase” on the Parent Company’s balance sheet as of December 31, 2011 is a secured loan from MBIA Insurance Corporation of $300 million. As of December 31, 2012, the outstanding balance of the secured loan was repaid in full.