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Please stand by. Your meeting is about to begin. Welcome to the MBIA Inc. Second Quarter 2026 Financial Results Conference Call. I would now like to turn the call over to Greg Diamond, Managing Director of Investor and Media Relations at MBIA. Please go ahead, sir.

Thank you, Angela. Yes, welcome to MBIA's conference call for our latest financial results. After the market closed yesterday, we issued and posted several items on our websites, including our financial results, 10-Q, quarterly operating supplement, and statutory financial statements for both MBIA Insurance Corporation and National Public Finance Guarantee Corporation. We also posted updates to the listings of our insurance companies' insured portfolios. Regarding today's call, please note that anything said on the call is qualified by the information provided in the company's 10-K, 10-Qs, and other SEC filings, as our company's definitive disclosures are incorporated in those documents. We urge investors to read our 10-K and 10-Qs as they contain our most current disclosures about the company and its financial and operating results. Those documents also contain information that may not be addressed on today's call. The definitions and reconciliations of the non-GAAP terms included in our remarks today are also included in our 10-K and 10-Qs, as well as our financial results report and our quarterly operating supplement. The recorded replay of today's call will become available on the NBIA website approximately two hours after the end of the call. Now here is our safe harbor disclosure statement. Our remarks on today's conference call may contain forward-looking statements. Important factors such as general market conditions and the competitive environment could cause our actual results to differ materially from the projected results referenced in our forward-looking statements. Risk factors are detailed in our 10-K and 10-Qs, which are available on our website at mbaa.com. The company cautions not to place undue reliance on any such forward-looking statements. The company also undertakes no obligation to publicly correct or update any forward-looking statement if it later becomes aware that such statement is no longer accurate. For our call today, Bill Fallon and Joe Sachinger will provide introductory comments and then a question and answer session will follow. Now here's Bill Fallon. Thanks, Greg.

Good morning, everyone. Thank you for being with us today. Our second quarter and year-to-date financial results for 2026 provided favorable comparisons to the same periods for the prior year. Our priority continues to be resolving National's PREPA exposure. National's outstanding PREPA exposure reduced by $35 million to $390 million of gross par value due to the insurance policy claims paid by National on PREPA bonds that matured on July 1st, 2026. There was also some progress on several of the litigations related to PREPA. The Director of the White House Personnel Office, which appealed the injunctive relief that was awarded to three of the Oversight Board members that were fired by President Trump, has asked the First Circuit Court of Appeals to remand that case back to the trial court in light of the U.S. Supreme Court's rulings issued in late June regarding the Slaughter and Cook cases. In the case about the PREPA bondholders counterclaim for the calculation of net revenues, Judge Swain lifted the self-imposed litigation stay, and that case is currently in discovery. With the administrative claim appealed to the First Circuit, that case is now fully briefed and scheduled for all arguments in Boston on September 15th. Separately, The Oversight Board nearly doubled their settlement offer to prep of bondholders from $1.6 billion to approximately $3 billion. However, bondholders representing about 90% of bondholder claims soundly dismissed the offer as unacceptable and inadequate. Regarding the balance of Nationals insured portfolio, those credits have continued to perform generally consistent with our expectations. The gross par amount outstanding for National's insured portfolio has declined by approximately $1.5 billion from year end 2025 to about $20.8 billion at June 30th, 2026. National's leverage ratio gross part of statutory capital was 21 to 1 at the end of the quarter, down from 24 to 1 at year end 2025. As of June 30th, 2026, National had total claims paying resources of $1.4 billion and statutory capital and surplus of about $970 million. Now, Joe will provide additional comments about our financial results.

Thank you, Bill, and good morning, everyone. I will begin with a review of our second quarter 2026 GAAP and non-GAAP results followed by an overview of our holding company liquidity and our statutory results. The company reported a consolidated gap net loss of $46 million or a negative 91 cents per share for the second quarter of 2026 compared with a consolidated gap net loss of $56 million or a negative $1.12 per share for the second quarter of 2025. The lower gap net loss this quarter was primarily driven by two items. First, we recorded a reversal of legal expenses within a consolidated variable interest entity, or VIE, related to our ZOHAR CDO recoveries at NBIA Insurance Corp. And second, our results benefited from foreign exchange gains in the second quarter of 2026 compared with foreign exchange losses in the same period of 2025. These foreign exchange impacts were associated with the revaluation of Euro-denominated medium-term note liabilities in our corporate segment and resulted from changes in foreign exchange rates. The company's adjusted net loss, which is a non-GAAP measure, was $7 million or a negative 14 cents per share for the second quarter of 2026, compared with an adjusted net loss of $8 million or a negative 17 cents per share for the second quarter of 2025. The modest improvement in our adjusted net loss this quarter was primarily driven by slightly lower loss and loss adjustment expenses, or LAE, at National related to its PREPA exposure. NBIA Inc.'s book value per share as of June 30, 2026 was negative $45.58 per share, reflecting a decrease of $1.31 per share from year-end 2025. This decrease was primarily due to our consolidated net loss of $86 million for the first six months of 2026. Included in NBIA Inc.'s book value per share as of June 30th, 2026 is a negative $54.26 per share of NBIA Insurance Corps' book value. I will now spend a few minutes on our corporate segment balance sheet. The corporate segment, which primarily includes the activities of the holding company, NBIA Inc., had total assets of approximately $635 million as of June 30, 2026. Within this total are the following material assets. Unencumbered cash and liquid assets held by NBIA Inc. totaled $337 million compared with $357 million as of December 31st, 2025. The decrease from year-end 2025 was primarily due to ongoing debt service payments and operating expenses net of investment income. We continue to manage holding company liquidity carefully with a primary focus on meeting our outstanding obligations and preserving financial flexibility. In addition to the unencumbered cash and liquid assets, the corporate segments assets included approximately $183 million of assets at market value pledged to guaranteed investment agreement contract holders. These assets fully collateralized the principal amounts of those contracts. The segment's assets also included $66 million of assets at NBIA Services, our management services company, to support its operating obligations. I'll now turn to the insurance company's statutory results. National reported statutory net income of $10 million for the second quarter of 2026 compared with statutory net income of $6 million for the second quarter of 2025. The favorable variance was primarily driven by higher earned premiums, which resulted from refundings of insured credits and lower loss in LAE and operating expenses in the current quarter. National statutory capital as of June 30th, 2026 was $968 million up $31 million compared with December 31st, 2025. The increase was mostly due to National's statutory net income for the first six months of 2026, as well as unrealized gains in its investment portfolio. As of June 30th, 2026, National's claims paying resources were $1.4 billion, consistent with year-end 2025. Now I'll turn to MBIA Insurance Corp. MBIA Insurance Corp reported statutory net income of $27 million for the second quarter of 2026, compared with statutory net income of $4 million for the second quarter of 2025. The favorable variance was primarily driven by a significantly larger loss in LAE benefit in the current quarter compared with the second quarter of 2025. The loss in LAE benefit this quarter was driven by our ongoing reassessment of recoveries of paid claims and other amounts owed to NBIA Insurance Corp related to the Zohar CDOs. As of June 30th, 2026, the statutory capital of NBIA Insurance Corp was $106 million. reflecting an increase of $27 million from year-end 2025. This increase was primarily a result of net income of $28 million for the first six months of 2026. Claims paying resources totaled $342 million as of June 30th, 2026, up $25 million from year-end 2025. MBIA Insurance Corp's insured gross par outstanding was just under $1.8 billion as of June 30, 2026, down approximately 12% from year-end 2025 due to regular amortization of the insured portfolio. And now we will turn the call over to the operator to begin the question and answer session.

Thank you. If you have a question at this time, please press star 1 on your telephone keypad. If you wish to remove yourself from the queue, press star 2. We ask that when posing your question, you please pick up your handset to allow optimal sound quality. And we'll take our first question from Tommy McJoynt with KBW. Your line is now open.

Good morning, this is Molly Knoll on for Tommy McTwin. Thank you for taking our questions. First, can you talk about the latest PREPA settlement proposal from the Oversight Board? From your perspective, was there anything incrementally positive about the offer in terms relative to prior proposals? Or, you know, in your view, are we no closer to a potential resolution than previously?

Yeah, thank you, Molly. With regard to the PREPA proposal that came across, The positive was that it was, from their perspective, a substantial increase. Other than that, there's not a whole lot to talk about. As I said in my comments, the bondholders dismissed it as clearly inadequate. So hard to say where we go from here in terms of how much time. As I mentioned, several of the litigations are moving forward. As you know, there is some uncertainty with regard to the composition of the oversight board currently only four members, three of whom are fighting the dismissal by the Trump administration. So hard to tell with regard to timing and exactly how this will play out. But those are our thoughts with regard to that proposal.

Thank you. And I guess secondly, you paid the special dividend out of national a couple of years ago. That caused National's capital ratio to dip from just over 3% to about 2%. Should we think of any portion of the capital ratio above that roughly 2% figure as potentially being available to distribute up to the hold go as the insured portfolio continues to run down?

Yeah, so with regard to National and any distributions from National holding company, you're correct. It was at the end of 2023 that we had a special Distribution from National to Holding Company. While everyone looks at different metrics and does their own financial analysis, as the book gets smaller, it becomes a very tailored analysis with regard to what's in the national portfolio. So I understand how everyone looks at metrics and that's in a sense fine, but it probably has to be even a more detailed analysis to determine exactly Thank you. Thank you.

Thank you. And our next question will come from investor Carlos Pardo. Your line is now open.

Hi, this is Carlos Pardo from London. Good afternoon. Just a few questions. I mean, on the buybacks, I saw that the capacity is still $71 million, and I just wanted to make sure that you confirmed that it is available and it still could be deployed.

That is correct. There is $71 million available.

So basically, there is no other constraint, not just the legal constraint, but also it's basically up to you to decide when you think that this is in the interest of the shareholders. My impression is that since the share price has dropped as you have seen over the last year, maybe now it is the time to consider whether deploying these buybacks. And of course, I will be sending you my Thank you very much. Since I expect that the Oversight Board will have some good news in terms of the composition of the Oversight Board soon, I think that probably this drop to around $5 is a good opportunity. So just to let you know that I will be sending you a proposal. Of course, it's always up to you to decide whether to implement it.

Okay. Okay.

Then on the custodial receipts, I saw that you have done another transaction for $30 million. I assume that this $30 million corresponds to the payments that we made under PREPA on the 1st of July, and I think that there was another one on the 1st of January?

So with regard to the custodial receipts and that service payment that we made on July 1st, So we paid $35 million on July 1st. $5 million was a secondary policy. So $30 million now have been transferred into a custody account. We have the custodial receipts as we did last year. Those could be sold. Fantastic. And then the $5 million that were secondary, those can be sold as well. So we have $35 million that could be sold. If we think there is an appropriate price or offer that we receive, then we would sell up to $35 million.

That's fantastic. And then on PREPA payments, the only payments that we will have to make over the next two years is $20 million in 27 and $20 million in 28. So it is relatively benign, the payment schedule.

That's correct. The debt service payments on prep have declined significantly over the period you just mentioned.

Yeah, that's fantastic. That's good news. And also, you know, related to the potential use of the buybacks, I think that, you know, that could theoretically make sense. But of course, I mean, it's always up to you guys that you have the bigger, the full picture. Then on the COP, you know, basically, you know, the COP has been extended until, I think that is August 2027, right? which I think that it makes sense in terms of the recent decisions and the potential for new members of the oversight board. But I just wanted to know, the terms of the COP have not changed. So basically, if only one party to the COP is opposing an agreement that has been reached by all the other parties to the COP, This party, let's say, for example, could not block this agreement. Is that correct? Are those terms still valid?

Essentially, yes.

Yeah, so basically, they could not block. I mean, let's say, for example, a civil guarantee does not agree with an agreement that has been reached by the rest of the co-op members, they cannot block it. My question there is, since the resolution of PREPA, you know, is so important for NBAA, and we have basically, you know, How does the conversations within the Co-op look like? Are we actively seeking to propose potential solutions to the other members of the Co-op or are we more on a passive mode?

I can't get into the details in terms of the views of all the different members. That is the bondholders. I can assure you we're not passive, but we obviously have a very vested interest in the outcome. And we're up to 90% of the bondholders are in the co-op agreement. And I think the biggest issue really has been the oversight board. That is the uncertainty with regard to the composition of the board. and also the litigation related to it. We think that could be a real catalyst that is either the appointment of the three vacant positions or the resolution of the litigation. Hopefully that will be, again, a catalyst to move this forward.

When do you expect, I mean, of course, we are dealing with the Puerto Rico bankruptcy, so predicting is impossible, but when do you think that, in your opinion, that this, after the recent decision, I think it was last week, when do you think that there will be some kind of green light for new members? What is your expectation of the board?

It's very hard to predict. It really depends on how the administration wants to move forward. Again, we hope it's as soon as possible, but it's just very hard to predict.

And is the co-op contacting also the administration in terms of trying to get them to accelerate this situation?

Again, I can't speak to the specific actions that the co-op board is taking, but I think it's reasonable to assume that not only are we, but all bondholders are doing everything they can to move this to a resolution.

Fantastic. I will be also sending you some kind of proposal as to what I would do in terms of trying to get the co-op to move. Of course, knowing that the key catalyst, as you say, is the appointment of the new members of the board, but I will be sending it to you for your consideration.

Okay.

Perfect. Thank you. Thank you for your time. Thank you.

Thank you.

Thank you. And as a reminder, if you'd like to ask a question, you may do so by pressing star and 1 on your keypad now. We'll move next to John Staley with Staley Capital Advisors. Your line is now open.

Thank you. Bill, quick question. Offer from the Oversight Board doubled, roughly. What's your estimate of how much of a spread there is between your offer and what the bondholders would consider to be reasonable? Do I have to double again or triple again? I don't know.

Yeah, John, again, it's difficult to answer because I think every bondholder probably has a different number in mind. But roughly speaking, the offer that came across was somewhere probably in, you know, between 30 and 40 cents, depending how you value everything. That's 30 to 40 cents on a dollar a par. And just as a benchmark, the bonds right now in the marketplace, while it's not a really deeper liquid market, but the last indications, those were trading at about 75 cents. So that at least gives you some reference point between what the offer, was in what the so-called marketplace is saying.

Yes.

Terrific.

And as you review your current insured portfolio, do you factor in the political trends of the protected liberal side of the parties in the so-called blue states and this democratic socialist group who have no respect for existing contracts. Has that factored into you with any potential thoughts that you might have some impairment because of political trends not supporting honoring existing contracts and commitments?

So when we look at the portfolio, we look at obviously many factors. What you just described is one, it's not a new factor. We have looked at the way different administrations have handled, whether it be state or local, obligations for a long time. Clearly, you're looking at some of the trends and situations that are developing across the country right now. We look at all of those things. Without getting into what probably could be a weeks-long discussion on the topic that you're highlighting, it is something that we factor into our analysis. There are no impairments that we have taken in this quarter specifically related to those type of administrations for some reason choosing not to meet a contractual obligation. We hope all administrations will continue to fulfill their obligations. and we'll just continue to monitor the situation.

Thank you. And I interpret the various updates you had on PREPA as being about as positive as it could be. I don't know how the Supreme Court ruling could have been any more positive other than if they literally said that you could fire her. They basically implied they have the right to fire anybody.

I suspect this is finally moving to a more, hopefully, clear resolution.

We would love for things to move quickly, just if you would.

Thank you very much. Thank you. Thank you.

Thank you. And we'll go next to Patrick Stadelhofer with Kahn. Your line is now open.

Hi, good morning. I just wanted to ask about a kind of thoughts around the potential sale process, given that all the gating items from last time you're making progress on, and obviously there's ongoing cash burn in the business. Just wanted to think how, kind of what steps are remaining for you to do so, and would you, again, do it as a public process of what you did three or four years ago, or would you do it behind the scenes to come around? Thank you.

Yeah, Patrick, thank you. With regard to a sale process, and again, you're referring to, I guess it was four years ago, we announced we had hired Barclays to help us with a sale process. We then decided to stop that process and pursued the distribution from national and shareholder dividend. With regard to how we would do this moving forward, The answer is it depends. I think the probability of a transaction goes up every time we reduce our exposure to PREPA. Obviously, different potential acquirers will view the PREPA situation differently. There are some who probably look at a resolution similar to what we might think of in terms of value or potential value. So again, at this point, we don't have any specific decision. If we decided that we were going to run a process similar to what we did four years ago, my guess is we would announce that. There's also the possibility that individuals contact us at any point in time, or given that we probably can identify potential acquirers, we could reach out to them at any point in time if we thought it was advantageous for shareholders. So again, nothing specific. on that at this point in time, but something that we look at constantly. Thank you. Thank you.

And at this time, I'm showing no further questions. I'd like to turn the floor back over to Greg Diamond for closing remarks.

Thanks again, Angela, and thanks to those of you listening to our call. Please contact us directly if you have any additional questions. We also recommend that you visit our website at mba.com for additional information on our company. Thank you for your interest in MBIA. Good day and goodbye.

Thank you. This brings us to the end of today's meeting. We appreciate your time and participation. You may now disconnect.