EMERYVILLE, Calif., Oct. 30, 2018 (GLOBE NEWSWIRE) -- NMI Holdings, Inc. (NMIH) today reported GAAP net income of $24.8 million, or $0.36 per diluted share, and adjusted net income of $31.8 million, or $0.46 per diluted share, for its third quarter ended September 30, 2018. This compares with GAAP net income of $25.2 million, or $0.37 per diluted share, and adjusted net income of $27.4 million, or $0.40 per diluted share in the second quarter ended June 30, 2018. In the third quarter of 2017, the company reported GAAP net income of $12.3 million, or $0.20 per diluted share, and adjusted net income of $12.6 million, or $0.20 per diluted share. The non-GAAP financial measures adjusted net income, adjusted net income per share and adjusted return-on-equity are presented in this release to enhance the comparability of financial results between periods. See "Use of Non-GAAP Financial Measures" below.
Bradley Shuster, Chairman and CEO of National MI, said, "National MI delivered record third quarter financial results, including record new insurance written of $7.4 billion, record net premiums earned of $65.4 million, record adjusted net income of $31.8 million, and record adjusted return-on-equity of 19.7%. We continued to grow our high-quality insured portfolio at an industry-leading rate and achieved broad success with Rate GPS, our granular risk selection and pricing engine. Customers have quickly recognized the value that Rate GPS offers them and their borrowers, and we have seen an immediate benefit in the credit quality and volume of new business coming through the platform. Rate GPS, along with our industry-leading individual risk underwriting approach and our comprehensive reinsurance program, provides us with what we believe is the most robust risk management framework in our industry."
- As of September 30, 2018, the company had primary insurance-in-force of $63.5 billion, up 9% from $58.1 billion at the prior quarter end and up 47% over $43.3 billion as of September 30, 2017.
- Net premiums earned for the quarter were $65.4 million, including $2.6 million attributable to cancellation of single premium policies, which compares with $61.6 million, including $3.1 million related to cancellations, in the prior quarter. Net premiums earned in the third quarter of 2018 were up 47% over net premiums earned of $44.5 million in the same quarter a year ago, which included $4.3 million related to cancellations.
- Total underwriting and operating expenses in the third quarter were $30.4 million, including approximately $1.9 million of fees and expenses related to the recently completed Insurance-Linked Notes transaction. This compares with total underwriting and operating expense of $29.0 million in the prior quarter, which included approximately $0.7 million of fees and expenses related to the issuance of the Insurance-Linked Notes, and $24.6 million in the same quarter a year ago.
- At quarter-end, cash and investments were $893 million and shareholders’ equity was $660 million, equal to $9.96 per share. Return on equity for the quarter was 15.4% and adjusted return on equity was 19.7%.
- At quarter-end, the company had total PMIERs available assets of $702 million, which compares with risk-based required assets under PMIERs of $399 million.
Adjusted net income and adjusted net income per diluted share for the quarters presented exclude the impact of periodic capital markets transaction costs, changes in the fair value of our warrant liability and realized gains or losses from our investment portfolio. In the third quarter of 2018, adjusted net income and adjusted net income per diluted share exclude costs of $1.9 million related to the issuance of Insurance-Linked Notes in July 2018, as well as a pre-tax loss of $5.5 million related to the change in fair value of the company’s warrant liability and pre-tax net realized investment losses of $8 thousand.
|Quarter Ended||Quarter Ended||Quarter Ended||Change (1)||Change (1)|
|Primary Insurance-in-Force ($billions)||$||63.5||$||58.1||$||43.3||9||%||47||%|
|New Insurance Written - NIW ($billions)|
|Premiums Earned ($millions)||65.4||61.6||44.5||6||%||47||%|
|Underwriting & Operating Expense ($millions)||30.4||29.0||24.6||5||%||23||%|
|Loss Expense ($millions)||1.1||0.6||1.0||71||%||15||%|
|Cash & Investments ($millions)||$||892.6||$||854.7||$||713.4||4||%||25||%|
|Book Equity ($millions)||660.5||629.6||511.0||5||%||29||%|
|Book Value per Share||9.96||9.58||8.53||4||%||17||%|
(1) Percentages may not be recalculated based on the rounded figures presented in the table.
Conference Call and Webcast Details
The company will hold a conference call and live webcast at 2:00 p.m. Pacific Time / 5:00 p.m. Eastern Time. The webcast will be available on the company's website, www.nationalmi.com, in the "Investor Relations" section. The call also can be accessed by dialing (888) 734-0328 in the U.S., or (914) 495-8578 for international callers using Conference ID: 1297249, or by referencing NMI Holdings, Inc.
About NMI Holdings, Inc.
NMI Holdings, Inc. (NMIH), is the parent company of National Mortgage Insurance Corporation (National MI), a U.S.-based, private mortgage insurance company enabling low down payment borrowers to realize home ownership while protecting lenders and investors against losses related to a borrower's default. To learn more, please visit www.nationalmi.com.
Cautionary Note Regarding Forward-Looking Statements
Certain statements contained in this press release or any other written or oral statements made by or on behalf of the Company in connection therewith may constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and the U.S. Private Securities Litigation Reform Act of 1995 (PSLRA). The PSLRA provides a "safe harbor" for any forward-looking statements. All statements other than statements of historical fact included in or incorporated by reference in this release are forward-looking statements, including any statements about our expectations, outlook, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance. These statements are often, but not always, made through the use of words or phrases such as "anticipate," "believe," "can," "could," "may," "predict," "assume," "potential," "should," "will," "estimate," "plan," "project," "continuing," "ongoing," "expect," "intend" and similar words or phrases. All forward-looking statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that may turn out to be inaccurate and could cause actual results to differ materially from those expressed in them. Many risks and uncertainties are inherent in our industry and markets. Others are more specific to our business and operations. Important factors that could cause actual events or results to differ materially from those indicated in such statements include, but are not limited to: changes in the business practices of Fannie Mae and Freddie Mac (collectively, the GSEs), including decisions that have the impact of decreasing or discontinuing the use of mortgage insurance as credit enhancement; our ability to remain an eligible mortgage insurer under the private mortgage insurer eligibility requirements (PMIERs) and other requirements imposed by the GSEs, which they may change at any time; retention of our existing certificates of authority in each state and the District of Columbia (D.C.) and our ability to remain a mortgage insurer in good standing in each state and D.C.; our future profitability, liquidity and capital resources; actions of existing competitors, including public mortgage insurers such as the Federal Housing Administration and the Veterans Administration and potential market entry by new competitors or consolidation of existing competitors; developments in the world's financial and capital markets and our access to such markets, including reinsurance; adoption of new or changes to existing laws and regulations that impact our business or financial condition directly or the mortgage insurance industry generally or their enforcement and implementation by regulators; changes to the GSEs' role in the secondary mortgage market or other changes that could affect the residential mortgage industry generally or mortgage insurance industry in particular; potential future lawsuits, investigations or inquiries or resolution of current lawsuits or inquiries; changes in general economic, market and political conditions and policies, interest rates, inflation and investment results or other conditions that affect the housing market or the markets for home mortgages or mortgage insurance; our ability to successfully execute and implement our capital plans, including our ability to access the capital, credit and reinsurance markets and to enter into, and receive approval of reinsurance arrangements on terms and conditions that are acceptable to us, the GSEs and our regulators; our ability to implement our business strategy, including our ability to write mortgage insurance on high quality low-down payment residential mortgage loans, implement successfully and on a timely basis, complex infrastructure, systems, procedures, and internal controls to support our business and regulatory and reporting requirements of the insurance industry; our ability to attract and retain a diverse customer base, including the largest mortgage originators; failure of risk management or pricing or investment strategies; emergence of unexpected claim and coverage issues, including claims exceeding our reserves or amounts we had expected to experience; potential adverse impacts arising from recent natural disasters, including, with respect to the affected areas, a decline in new business, adverse effects on home prices, and an increase in notices of default on insured mortgages; the inability of our counter-parties, including third party reinsurers, to meet their obligations to us; our ability to utilize our net operating loss carryforwards, which could be limited or eliminated in various ways, including if we experience an ownership change as defined in Section 382 of the Internal Revenue Code; failure to maintain, improve and continue to develop necessary information technology systems or the failure of technology providers to perform as expected; and, our ability to recruit, train and retain key personnel. These risks and uncertainties also include, but are not limited to, those set forth under the heading "Risk Factors" detailed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2017 and in Item IA of Part II of our Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, as subsequently updated through other reports we file with the SEC. All subsequent written and oral forward-looking statements attributable to the company or persons acting on its behalf are expressly qualified in their entirety by these cautionary statements. We caution you not to place undue reliance on any forward-looking statement, which speaks only as of the date on which it is made, and we undertake no obligation to publicly update or revise any forward-looking statement to reflect new information, future events or circumstances that occur after the date on which the statement is made or to reflect the occurrence of unanticipated events except as required by law.
Use of Non-GAAP Financial Measures
We believe that use of the non-GAAP measures of adjusted pre-tax income, adjusted net income, adjusted net income per share and adjusted return-on-equity facilitate the evaluation of our fundamental financial performance, thereby providing relevant information to investors. These non-GAAP financial measures align with the way the company's business performance is evaluated by management. These measures are not recognized in accordance with GAAP and should not be viewed as alternatives to GAAP measures of performance. These measures have been established in order to increase transparency for the purposes of evaluating our fundamental operating trends and enabling more meaningful comparisons with our peers.
Adjusted pre-tax income is defined as GAAP income before tax, excluding the effects of the gain or loss related to the change in fair value of our warrant liability, periodic costs incurred in connection with capital markets transactions, net realized gains or losses from our investment portfolio, and discrete, non-recurring and non-operating items in the periods in which such items are incurred.
Adjusted net income is defined as GAAP net income excluding the after-tax effects of the gain or loss related to the change in fair value of our warrant liability, periodic costs incurred in connection with capital markets transactions, net realized gains or losses from our investment portfolio, and discrete, non-recurring and non-operating items in the periods in which such items are incurred. Adjustments to components of pre-tax income are tax effected using the applicable federal statutory tax rate for the respective periods.
Adjusted net income per diluted share is calculated in a manner consistent with the accounting standard regarding earnings per share by dividing (i) adjusted net income by (ii) diluted weighted average common shares outstanding, which includes shares of common stock outstanding and common stock equivalents that would be issuable upon (i) the vesting of service based RSUs and (ii) exercise of vested and unvested stock options and outstanding warrants.
Adjusted return-on-equity is calculated by dividing adjusted net income on an annualized basis by the average shareholders’ equity for the period.
Although adjusted pre-tax income and adjusted net income exclude certain items that have occurred in the past and are expected to occur in the future, the excluded items are: (1) not viewed as part of the operating performance of our primary activities; or (2) impacted by market, economic or regulatory factors and are not necessarily indicative of operating trends, or both. These adjustments, along with the reasons for their treatment, are described below. Trends in the profitability of our fundamental operating activities can be more clearly identified by adjusting for fluctuations in these items. Other companies may calculate these measures differently. Therefore, their measures may not be comparable to those used by us.
- Change in fair value of warrant liability. Outstanding warrants at the end of each reporting period are revalued, and any change in fair value is reported in the statements of operations in the period in which the change occurred. The change in the fair value of our warrant liability can vary significantly across periods and is influenced principally by equity market and general economic factors which may not impact or reflect our current period operating results. Trends in our operating performance can be more clearly identified without the fluctuations of the change in fair value of our warrant liability.
- Capital markets transaction costs. Capital markets transaction costs result from discretionary activities that are undertaken to improve our debt profile or enhance our capital position through activities such as debt refinancing and capital markets reinsurance transactions.
- Net realized investment gains and losses. The recognition of the net realized investment gains or losses can vary significantly across periods as the timing of specific securities sold is highly discretionary and is influenced by factors such as market opportunities, tax and capital profile and overall market cycles.
- Infrequent or unusual non-operating items. Income Statement items occurring separately from operating earnings that are not expected to recur in the future. They are the result of unforeseen or uncommon events. Exclusion of these items provides clarity about the impact of special or rare circumstances on current financial performance. An example is income tax expense adjustments due to a re-measurement of the net deferred tax assets in connection with tax reform, which are non-recurring in nature and are not part of our primary operating activities. We did not adjust for any infrequent or unusual non-operating items to calculate the non-GAAP measures presented in this release.
John M. Swenson
Vice President, Investor Relations and Treasury
Strategic Vantage Mortgage Public Relations
|Consolidated statements of operations and comprehensive income||For the three months ended September 30,||For the nine months ended September 30,|
|Revenues||(In Thousands, except for per share data)|
|Net premiums earned||$||65,407||$||44,519||$||181,936||$||115,661|
|Net investment income||6,277||4,170||16,586||11,885|
|Net realized investment (losses) gains||(8||)||69||51||198|
|Insurance claims and claim expenses||1,099||957||3,311||2,965|
|Underwriting and operating expenses||30,379||24,645||87,852||78,682|
|Loss from change in fair value of warrant liability||(5,464||)||(502||)||(4,935||)||(679||)|
|Total other expense||(8,436||)||(3,854||)||(16,886||)||(10,825||)|
|Income before income taxes||31,847||19,497||90,717||35,733|
|Income tax expense||7,036||7,185||18,310||11,917|
|Earnings per share|
|Weighted average common shares outstanding|
|Other comprehensive income (loss), net of tax:|
|Net unrealized gains (losses) in accumulated other comprehensive income, net of tax (benefit) expense of ($337) and $366 for the three months ended September 30, 2018 and 2017, respectively, and ($3,676) and $2,439 for the nine months ended September 30, 2018 and 2017||(1,267||)||768||(13,828||)||4,786|
|Reclassification adjustment for realized losses (gains) included in net income, net of tax expense (benefit) of ($2) and $24 for the three months ended September 30, 2018 and 2017, respectively, and ($27) and $69 for the nine months ended September 30, 2018 and 2017||7||(45||)||102||(129||)|
|Other comprehensive (loss) income, net of tax||(1,260||)||723||(13,726||)||4,657|
(1) Loss ratio is calculated by dividing the provision for insurance claims and claims expenses by net premiums earned.
(2) Expense ratio is calculated by dividing other underwriting and operating expenses by net premiums earned.
|Consolidated balance sheets||September 30, 2018||December 31, 2017|
|Assets||(In Thousands, except for share data)|
|Fixed maturities, available-for-sale, at fair value (amortized cost of $889,794 and $713,859 as of September 30, 2018 and December 31, 2017, respectively)||$||874,435||$||715,875|
|Cash and cash equivalents (including restricted cash of $1,406 and $0 as of September 30, 2018 and December 31, 2017, respectively)||18,187||19,196|
|Accrued investment income||5,881||4,212|
|Deferred policy acquisition costs, net||44,437||37,925|
|Software and equipment, net||22,887||22,802|
|Intangible assets and goodwill||3,634||3,634|
|Prepaid reinsurance premiums||33,058||40,250|
|Deferred tax asset, net||6,880||19,929|
|Accounts payable and accrued expenses||27,134||23,364|
|Reserve for insurance claims and claim expenses||10,908||8,761|
|Reinsurance funds withheld||28,953||34,102|
|Deferred ceding commission||4,161||5,024|
|Warrant liability, at fair value||10,930||7,472|
|Commitments and contingencies|
|Common stock - class A shares, $0.01 par value; 66,285,847 and 60,517,512 shares issued and outstanding as of September 30, 2018 and December 31, 2017, respectively (250,000,000 shares authorized)||663||605|
|Additional paid-in capital||678,165||585,488|
|Accumulated other comprehensive loss, net of tax||(16,303||)||(2,859||)|
|Total shareholders' equity||660,493||509,077|
|Total liabilities and shareholders' equity||$||1,052,481||$||894,848|
|Non-GAAP Financial Measure Reconciliations|
|Quarter ended||Quarter ended||Quarter ended|
|As Reported||(In Thousands, except for per share data)|
|Net premiums earned||$||65,407||$||61,615||$||44,519|
|Net investment income||6,277||5,735||4,170|
|Net realized investment (losses) gains||(8||)||59||69|
|Insurance claims and claims expenses||1,099||643||957|
|Underwriting and operating expenses||30,379||29,020||24,645|
|(Loss) gain from change in fair value of warrant liability||(5,464||)||109||(502||)|
|Total other expense||(8,436||)||(5,451||)||(3,854||)|
|Income before income taxes||31,847||32,339||19,497|
|Income tax expense||7,036||7,098||7,185|
|Net realized investment losses (gains)||8||(59||)||(69||)|
|Loss (gain) from change in fair value of warrant liability||5,464||(109||)||502|
|Capital markets transaction costs||1,871||2,921||—|
|Adjusted income before income taxes||39,190||35,092||19,930|
|Income tax expense (benefit) on adjustments||395||578||152|
|Adjusted net income||$||31,759||$||27,416||$||12,593|
|Weighted average diluted shares outstanding||68,844||68,616||63,089|
|Diluted EPS - Reported||$||0.36||$||0.37||$||0.20|
|Diluted EPS - Adjusted||$||0.46||$||0.40||$||0.20|
|Return on Equity - Reported||15.4||%||16.4||%||9.8||%|
|Return on Equity - Adjusted||19.7||%||17.8||%||10.0||%|
|Historical Quarterly Data||2018||2017|
|September 30||June 30||March 31||December 31||September 30||June 30|
|Revenues||(In Thousands, except for per share data)|
|Net premiums earned||$||65,407||$||61,615||$||54,914||$||50,079||$||44,519||$||37,917|
|Net investment income||6,277||5,735||4,574||4,388||4,170||3,908|
|Net realized investment (losses) gains||(8||)||59||—||9||69||188|
|Insurance claims and claim expenses||1,099||643||1,569||2,374||957||1,373|
|Underwriting and operating expenses||30,379||29,020||28,453||28,297||24,645||28,048|
|Other expense (1)||(8,436||)||(5,451||)||(2,999||)||(6,808||)||(3,854||)||(3,281||)|
|Income before income taxes||31,847||32,339||26,531||17,059||19,497||9,496|
|Income tax expense||7,036||7,098||4,176||18,825||7,185||3,484|
|Earnings per share|
|Weighted average common shares outstanding|
|Loss Ratio (2)||1.7||%||1.0||%||2.9||%||4.7||%||2.1||%||3.6||%|
|Expense Ratio (3)||46.4||%||47.1||%||51.8||%||56.5||%||55.4||%||74.0||%|
(1) Other expense includes the gain from change in fair value of warrant liability and interest expense.
(2) Loss ratio is calculated by dividing the provision for insurance claims and claims expenses by net premiums earned.
(3) Expense ratio is calculated by dividing other underwriting and operating expenses by net premiums earned.
New Insurance Written (NIW), Insurance in Force (IIF) and Premiums
The tables below present primary NIW and primary and pool IIF, as of the dates and for the periods indicated.
|Primary NIW||Three months ended|
|September 30, |
|June 30, |
|March 31, |
|December 31, |
|September 30, |
|June 30, |
|Primary and pool IIF||As of|
|September 30, |
|June 30, |
|March 31, |
|December 31, |
|September 30, |
|June 30, |