MBIA Inc. (MBI) said second-quarter income shrank 89% as the value of insured derivatives plunged. The Armonk, N.Y.-based bond insurer earned $137 million, or 68 cents per common share, for the three months ended June 30, down from $1.3 billion, or $6.32 a share, a year earlier when MBIA recorded a $1.5 billion gain on insured credit derivatives. The company said it reached deals with five counterparties since March 31 to eliminate $8.7 billion in exposure on collateralized debt obligations, in exchange for one-time payments from MBIA Corp. "Overall, our results for the second quarter were positive," MBIA President and Chief Financial Officer Chuck Chaplin said. "New delinquencies in our second lien mortgage book were consistent with our expectations, and payments continued to be somewhat below what our models predicted." The CDO agreements also give the company "substantial reductions in future volatility," Chaplin said. MBIA reduced its legal reserves for residential mortgage-backed securities and asset-backed security CDOs, offsetting an increase in reserves for commercial mortgage-backed securities. Reserves, set aside in proportion to the company's estimate of net claims payments it will owe in the future, fell by $150 million in the second quarter. Write to Liz Enochs.