MGIC Investment Corporation Reports Third Quarter 2022 Results

Third Quarter 2022 Net Income of $249.6 million or $0.81 per Diluted Share

Third  Quarter 2022 Adjusted Net Operating Income (Non-GAAP) of $264.2 million or $0.86 per Diluted Share

MILWAUKEE, Nov. 2, 2022 /PRNewswire/ -- MGIC Investment Corporation (NYSE: MTG) today reported operating and financial results for the third quarter of 2022. Net income for the quarter was $249.6 million, or $0.81 per diluted share, compared with net income of $158.0 million, or $0.46 per diluted share, for the third quarter of 2021. 

Adjusted net operating income for the third quarter of 2022 was $264.2 million, or $0.86 per diluted share, compared with $157.1 million, or $0.46 per diluted share, for the third quarter of 2021. We present the non-GAAP financial measure "Adjusted net operating income" to increase the comparability between periods of our financial results. See "Use of Non-GAAP financial measures" below.

Tim Mattke, CEO of MTG and Mortgage Guaranty Insurance Corporation ("MGIC"), stated "I am pleased to report that we had another strong quarter, building upon the solid financial results we delivered in the first half of the year. During the quarter, we remained focused on executing our business strategies and again demonstrated the benefits of our capital position by growing insurance in force, increasing and paying a common stock dividend, decreasing our leverage ratio, repurchasing stock, and producing an annualized 21.8% return on equity. In addition, the credit quality and performance of our insurance in force portfolio remains strong."

"While the combination of rising interest rates, decelerating home prices, and other macroeconomic concerns have resulted in increased risks and uncertainties, our financial strength and capital flexibility position us to navigate the changing economic cycle." concluded Mattke.  

Third Quarter Summary

• New insurance written was $19.6 billion, compared with $24.3 billion in the second quarter of 2022 and $28.7 billion in the third quarter of 2021, primarily reflecting a decrease in the origination markets in the current year compared with the same period in the prior year.
• Persistency, or the percentage of insurance remaining in force from one year prior, was 75.7% at September 30, 2022, compared with 71.5% at June 30, 2022, and 59.5% at September 30, 2021.
• Insurance in force of $293.6 billion at September 30, 2022 increased by 2.4% during the quarter and 9.4% compared with September 30, 2021.
• Primary delinquency inventory of 25,878 loans at September 30, 2022 decreased from 26,855 loans at June 30, 2022, and 37,379 loans at September 30, 2021.
• The percentage of loans insured with primary insurance that were delinquent at September 30, 2022 was 2.17%, compared with 2.28% at June 30, 2022, and 3.20% at September 30, 2021.
• The loss ratio for the third quarter of 2022 was (41.7)%, compared with (38.7)% for the second quarter of 2022 and 8.1% for the third quarter of 2021.
• The underwriting expense ratio associated with our insurance operations for the third quarter of 2022 was 24.6%, compared with 22.4% for the second quarter of 2022 and 21.9% for the third quarter of 2021.
• Net premium yield was 34.7 basis points in the third quarter of 2022, compared with 36.2 basis points for the second quarter of 2022 and 38.4 basis points for the third quarter of 2021.
• Book value per common share outstanding as of September 30, 2022, decreased to $15.16, or 0.1%, from $15.18 as of December 31, 2021 and increased by 2.4% from $14.81 as of September 30, 2021. (September 30, 2022 book value per common share outstanding includes ($1.50) in net unrealized gains (losses) on securities, compared with $0.47 at December 31, 2021, and $0.59 at September 30, 2021).
• The decrease in the fair value of our investment portfolio is primarily due to the increase in market interest rates. The decrease is reflected in Accumulated Other Comprehensive Income and resulted in a modest decrease in book value per share for the current period compared with December 31, 2021. The increase for the book value per share for the current period compared with the same period in the prior year is primarily due to the cumulative impact of share repurchases year-over-year.
• We paid a dividend of $0.10 per common share to shareholders during the third quarter of 2022.
• We repurchased 6.1 million shares of common stock at an average cost of $13.90 per share.
• We repurchased $14.0 million in aggregate principal amount of our 9% Convertible Junior Debentures due 2063, reducing potentially dilutive shares by 1.1 million.
• We redeemed $242.3 million of aggregate principal outstanding on our 2023 Senior Notes for $248.4 million, plus accrued interest.

Fourth Quarter 2022 Activities

• In October, we repurchased an additional 2.6 million shares of our common stock at an average cost of $12.96 per share.
• We declared a dividend of $0.10 per common share to shareholders payable on November 23, 2022 to shareholders of record at the close of business on November 10, 2022.
• We have elected to terminate our 2015 QSR and 2019 QSR Transactions effective December 31, 2022.
• MGIC paid a $400 million dividend to our holding company.

Revenues

Total revenues for the third quarter of 2022 were $292.8 million, compared with $295.7 million in the third quarter last year. The decrease primarily reflects a change in net gains (losses) on investments and other financial instruments and a decrease in net premiums earned, partially offset by an increase in investment income. Premiums earned in the third quarter of 2022 were $252.1 million compared with $254.8 million for the same period last year. Net premiums written for the quarter were $242.3 million, compared with $247.6 million for the same period last year. The decrease in net premiums written and earned in the current period compared with the same period the prior year was primarily due to an increase in ceded premiums and a decrease in our premium yield.

Losses and expenses

Losses incurred   

Net losses incurred in the third quarter of 2022 were $(105.1) million, compared with $20.8 million in the same period last year primarily due to favorable loss development and continuing decreases in delinquency inventory. While new delinquency notices added approximately $36 million to losses incurred in the third quarter of 2022, our re-estimation of loss reserves resulted in favorable development of approximately $141 million primarily related to a decrease in the estimated claim rate on delinquencies. In the third quarter of 2021, our re-estimation of reserves on previous delinquency notices resulted in $18 million of favorable loss development.

Underwriting and other expenses

Net underwriting and other expenses were $61.7 million in the third quarter of 2022 compared with $57.2 million in the same period last year primarily due to an increase in expenses related to our investments in technology and data and analytics infrastructure.

Interest expense

Interest expense decreased to $10.3 million in the third quarter of 2022 from $18.0 million in the same period last year. The decrease is due to the repurchase of a portion of our 9% Convertible Junior Debentures and repayment of our 2023 Senior Notes and our Federal Home Loan Bank Advance.

Loss on debt extinguishment

The third quarter 2022 loss on debt extinguishment of $11.6 million reflects the repurchase of our 2023 Senior Notes and the repurchase of $14.0 million in aggregate principal amount of our 9% Convertible Junior Debentures in excess of their carrying value.

Capital

• Total consolidated shareholders' equity was $4.5 billion as of September 30, 2022, and compared with $4.9 billion as of December 31, 2021 and September 30, 2021. The decrease from December 31, 2021 and September 30, 2021 primarily reflects a decrease in the fair value of our investment portfolio and additional stock repurchases, offset by net income.
• MGIC's PMIERs Available Assets totaled $5.9 billion, or $2.6 billion above its Minimum Required Assets as of September 30, 2022, compared with PMIERs Available Assets of $5.7 billion, or $2.2 billion above its Minimum Required Assets as of December 31, 2021, and PMIERS Available Assets of $5.8 billion, or $2.6 billion above its Minimum Required Assets as of September 30, 2021.

Other Balance Sheet and Liquidity Metrics

• Total consolidated assets were $6.2 billion as of September 30, 2022, compared with $7.3 billion as of December 31, 2021, and $7.5 billion as of September 30, 2021. The decrease from December 31, 2021, and September 30, 2021 primarily reflects a decrease in the fair value of our consolidated investment portfolio due to the increase in market interest rates.
• The fair value of our consolidated investment portfolio, cash and cash equivalents was $5.7 billion as of September 30, 2022, compared with $6.9 billion as of December 31, 2021, and $7.1 billion as of September 30, 2021.
• The fair value of investments, cash and cash equivalents at the holding company was $352 million as of September 30, 2022, compared with $663 million as of December 31, 2021, and $716 million as of September 30, 2021.
• Consolidated debt was $663 million as of September 30, 2022, compared with $1.1 billion as of December 31, 2021, and $1.2 billion as of September 30, 2021.

Conference Call and Webcast Details

MGIC Investment Corporation will hold a conference call November 3, 2022, at 10 a.m. ET to allow securities analysts and shareholders the opportunity to hear management discuss the company's quarterly results. Individuals interested in joining by telephone should register for the call at https://edge.media-server.com/mmc/p/9sqqqpf3 to receive the dial-in number and unique PIN to access the call. It is recommended that you join the call at least 10 minutes before the conference call begins. The call is also being webcast and can be accessed at the company's website at http://mtg.mgic.com/ under "Newsroom." A replay of the webcast will be available on the company's website through December 5, 2022.

About MGIC

Mortgage Guaranty Insurance Corporation (MGIC) (www.mgic.com), the principal subsidiary of MGIC Investment Corporation, serves lenders throughout the United States, Puerto Rico, and other locations helping families achieve homeownership sooner by making affordable low-down-payment mortgages a reality through the use of private mortgage insurance. At September 30, 2022, MGIC had $293.6 billion of primary insurance in force covering more than 1.1 million mortgages.

This press release, which includes certain additional statistical and other information, including non-GAAP financial information and a supplement that contains various portfolio statistics, are all available on the Company's website at https://mtg.mgic.com/ under "Newsroom."

From time to time MGIC Investment Corporation releases important information via postings on its corporate website, and via postings on MGIC's website for information related to underwriting and pricing, and intends to continue to do so in the future. Such postings include corrections of previous disclosures and may be made without any other disclosure. Investors and other interested parties are encouraged to enroll to receive automatic email alerts and Really Simple Syndication (RSS) feeds regarding new postings. Enrollment information for MGIC Investment Corporation alerts can be found at https://mtg.mgic.com/shareholder-services/email-alerts. For information about our underwriting and rates, see https://www.mgic.com/underwriting.

Safe Harbor Statement

Forward Looking Statements and Risk Factors:

Our actual results could be affected by the risk factors below. These risk factors should be reviewed in connection with this press release and our periodic reports to the Securities and Exchange Commission ("SEC"). These risk factors may also cause actual results to differ materially from the results contemplated by forward looking statements that we may make. Forward looking statements consist of statements which relate to matters other than historical fact, including matters that inherently refer to future events. Among others, statements that include words such as "believe," "anticipate," "will" or "expect," or words of similar import, are forward looking statements. We are not undertaking any obligation to update any forward looking statements or other statements we may make even though these statements may be affected by events or circumstances occurring after the forward looking statements or other statements were made. No investor should rely on the fact that such statements are current at any time other than the time at which this press release was delivered for dissemination to the public.

While we communicate with security analysts from time to time, it is against our policy to disclose to them any material non-public information or other confidential information. Accordingly, investors should not assume that we agree with any statement or report issued by any analyst irrespective of the content of the statement or report, and such reports are not our responsibility.

Use of Non-GAAP financial measures

We believe that use of the Non-GAAP measures of adjusted pre-tax operating income (loss), adjusted net operating income (loss) and adjusted net operating income (loss) per diluted share facilitate the evaluation of the company's core financial performance thereby providing relevant information to investors. These measures are not recognized in accordance with accounting principles generally accepted in the United States of America (GAAP) and should not be viewed as alternatives to GAAP measures of performance.

Adjusted pre-tax operating income (loss) is defined as GAAP income (loss) before tax, excluding the effects of net realized investment gains (losses), gain and losses on debt extinguishment and infrequent or unusual non-operating items where applicable.

Adjusted net operating income (loss) is defined as GAAP net income (loss) excluding the after-tax effects of net realized investment gains (losses), gain and losses on debt extinguishment and infrequent or unusual non-operating items where applicable. The amounts of adjustments to components of pre-tax operating income (loss) are tax effected using a federal statutory tax rate of 21%.

Adjusted net operating income (loss) per diluted share is calculated in a manner consistent with the accounting standard regarding earnings per share by dividing (i) adjusted net operating income (loss) after making adjustments for interest expense on convertible debt, whenever the impact is dilutive, by (ii) diluted weighted average common shares outstanding, which reflects share dilution from unvested restricted stock units and from convertible debt when dilutive under the "if-converted" method.

Although adjusted pre-tax operating income (loss) and adjusted net operating income (loss) exclude certain items that have occurred in the past and are expected to occur in the future, the excluded items represent items that are: (1) not viewed as part of the operating performance of our primary activities; or (2) impacted by both discretionary and other 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 without the fluctuations of these adjustments. Other companies may calculate these measures differently. Therefore, their measures may not be comparable to those used by us.

 

 

 

 

 

 

 

 

 

 

Risk Factors

As used below, "we," "our" and "us" refer to MGIC Investment Corporation's consolidated operations or to MGIC Investment Corporation, as the context requires; and "MGIC" refers to Mortgage Guaranty Insurance Corporation.

Risk Factors Relating to Global Events

The COVID-19 pandemic may materially impact our future financial results, business, liquidity and/or financial condition.

The COVID-19 pandemic materially impacted our 2020 financial results. While the initial impact of COVID-19 on our business has moderated, the extent to which COVID-19 may materially impact our future financial results, business, liquidity and/or financial condition is uncertain and cannot be predicted. The magnitude of any future impact could be influenced by various factors, including the length and severity of the pandemic in the United States, efforts to reduce the transmission of COVID-19, the level of unemployment, government initiatives and actions taken by Fannie Mae and Freddie Mac (the "GSEs") (including mortgage forbearance and modification programs), and the overall effects of  COVID-19 on the economy.

The COVID-19 pandemic may impact our business in various ways, including the following which are described in more detail in the remainder of these risk factors:

• Our incurred losses will increase if loan delinquencies increase. We establish reserves for insurance losses when delinquency notices are received on loans that are two or more payments past due and for loans we estimate are delinquent prior to the close of the accounting period but for which delinquency notices have not yet been received (which are included in "IBNR"). In addition, our estimates of the number of delinquencies for which we will ultimately receive claims, and the amount, or severity, of each claim, may increase.
• We may be required to maintain more capital under the private mortgage insurer eligibility requirements ("PMIERs") of the GSEs, which generally require more capital to be held for delinquent loans than for performing loans and require more capital to be held as the number of payments missed on delinquent loans increases.
• If the number of delinquencies increases, the number of claims we must pay over time will generally increase.
• Our access to the reinsurance and capital markets may be limited and the terms under which we are able to access such markets may be negatively impacted.

The Russia-Ukraine war and/or other global events may adversely affect the U.S. economy and our business.

Russia's invasion of Ukraine has increased the already-elevated inflation rate, added more pressure to strained supply chains, and has increased volatility in the domestic and global financial markets. The war has impacted, and may impact, our business in various ways, including the following which are described in more detail in the remainder of these risk factors:

• The terms under which we are able to obtain excess-of-loss ("XOL") reinsurance through the insurance-linked notes ("ILN") market have been negatively impacted and terms under which we are able to access that market in the future may be less attractive.
• The risk of a cybersecurity incident that affects our company may have increased.
• An extended or broadened war may negatively impact the domestic economy, which may increase unemployment and inflation, or decrease home prices, in each case leading to an increase in loan delinquencies.
• The volatility in the financial markets may impact the performance of our investment portfolio and our investment portfolio may include investments in companies or securities that are negatively impacted by the war.

Risk Factors Relating to the Mortgage Insurance Industry and its Regulation

Downturns in the domestic economy or declines in home prices may result in more homeowners defaulting and our losses increasing, with a corresponding decrease in our returns.

Losses result from events that reduce a borrower's ability or willingness to make mortgage payments, such as unemployment, health issues, changes in family status, and decreases in home prices that result in the borrower's mortgage balance exceeding the net value of the home. A deterioration in economic conditions, including an increase in unemployment, generally increases the likelihood that borrowers will not have sufficient income to pay their mortgages and can also adversely affect home prices.

High levels of unemployment may result in an increasing number of loan delinquencies and an increasing number of insurance claims; however, unemployment is difficult to predict given the uncertainty in the current market environment, including as a result of global events such as the COVID-19 pandemic, the Russia-Ukraine war, and the possibility of an economic recession. Since the beginning of 2021, inflation has increased dramatically. The impact that higher inflation rates will have on loan delinquencies is unknown.

The seasonally-adjusted Purchase-Only U.S. Home Price Index of the Federal Housing Finance Agency (the "FHFA"), which is based on single-family properties whose mortgages have been purchased or securitized by Fannie Mae or Freddie Mac, indicates that home prices fell nationwide in August 2022, down 0.7% from the previous month. The 12 month change in home prices remains at historically high rates, but the rate of growth is moderating: it increased by 6.6% in the first eight months of 2022, after increasing 8.0% during the first five months of 2022, and 17.9%, 11.7%, and 5.9% in 2021, 2020 and 2019, respectively. The national average price-to-income ratio exceeds its historical average, in part as a result of recent home price appreciation outpacing increases in income. Affordability issues and the significant increase in interest rates in recent months has put downward pressure on home prices. Recent third-party forecasts predict that home prices will decline further. This decline may occur even absent a deterioration in economic conditions due to declines in demand for homes, which in turn may result from changes in buyers' perceptions of the potential for future appreciation, restrictions on and the cost of mortgage credit due to more stringent underwriting standards, higher interest rates, changes to the tax deductibility of mortgage interest, decreases in the rate of household formations, or other factors. 

The future impact of COVID-19-related forbearance and foreclosure mitigation activities is unknown.

Forbearance for federally-insured mortgages (including those delivered to or purchased by the GSEs) whose borrowers were affected by COVID-19 allows mortgage payments to be suspended for a period generally ranging from 6 to 18 months. Historically, forbearance plans have reduced the incidence of our losses on affected loans. However, given the uncertainty surrounding the long-term economic impact of COVID-19, it is difficult to predict the ultimate effect of COVID-19 related forbearances on our loss incidence. Whether a loan delinquency will cure, including through modification, when forbearance ends will depend on the economic circumstances of the borrower at that time. The severity of losses associated with delinquencies that do not cure will depend on economic conditions at that time, including home prices.

Foreclosures on mortgages purchased or securitized by the GSEs were suspended through July 31, 2021. Under a CFPB rule that was effective through December 31, 2021, with limited exceptions, servicers were required to ensure that at least one temporary procedural safeguard had been met before referring 120-day delinquent loans for foreclosure. Given the expiration of the CFPB rule, it is likely that foreclosures and claims will increase.

We may not continue to meet the GSEs'