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FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
_________
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended MARCH 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission file number 1-10816
MGIC INVESTMENT CORPORATION
(Exact name of registrant as specified in its charter)
WISCONSIN 39-1486475
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
250 E. KILBOURN AVENUE 53202
MILWAUKEE, WISCONSIN (Zip Code)
(Address of principal executive offices)
(414) 347-6480
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
---------- ----------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
CLASS OF STOCK PAR VALUE DATE NUMBER OF SHARES
- -------------- --------- ---- ----------------
Common stock $1.00 3/31/98 114,105,616
PAGE 1
MGIC INVESTMENT CORPORATION
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet as of
March 31, 1998 (Unaudited) and December 31, 1997 3
Consolidated Statement of Operations for the Three Months
Ended March 31, 1998 and 1997 (Unaudited) 4
Consolidated Statement of Cash Flows for the Three Months
Ended March 31, 1998 and 1997 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-9
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 10-13
Item 3. Quantitative and Qualitative Disclosures About Market Risk 14-15
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 16
SIGNATURES 17
INDEX TO EXHIBITS 18
PAGE 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
March 31, 1998 (Unaudited) and December 31, 1997
March 31, December 31,
1998 1997
--------- ------------
ASSETS (In thousands of dollars)
- ------
Investment portfolio:
Securities, available-for-sale, at market value:
Fixed maturities $2,315,903 $2,185,954
Equity securities 4,221 116,053
Short-term investments 222,631 114,733
---------- ----------
Total investment portfolio 2,542,755 2,416,740
Cash 5,988 4,893
Accrued investment income 34,007 35,485
Reinsurance recoverable on loss reserves 24,762 26,415
Reinsurance recoverable on unearned premiums 7,934 9,239
Home office and equipment, net 33,370 33,784
Deferred insurance policy acquisition costs 26,211 27,156
Investment in unconsolidated subsidiary 31,320 29,400
Other assets 28,653 34,575
---------- ----------
Total assets $2,735,000 $2,617,687
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Loss reserves $ 617,734 $ 598,683
Unearned premiums 183,666 198,305
Notes payable (note 2) 242,500 237,500
Income taxes payable 50,656 27,717
Other liabilities 62,532 68,700
---------- ----------
Total liabilities 1,157,088 1,130,905
---------- ----------
Contingencies (note 3)
Shareholders' equity (note 4):
Common stock, $1 par value, shares authorized
150,000,000; shares issued 121,110,800;
shares outstanding, 3/31/98 - 114,105,616;
1997 - 113,791,593 121,111 121,111
Paid-in surplus 218,397 218,499
Treasury stock (shares at cost, 3/31/98 - 7,005,184;
1997 - 7,319,207) (242,115) (252,942)
Unrealized appreciation in investments, net of tax
(note 6) 73,193 83,985
Retained earnings 1,407,326 1,316,129
---------- ----------
Total shareholders' equity 1,577,912 1,486,782
---------- ----------
Total liabilities and shareholders' equity $2,735,000 $2,617,687
========== ==========
See accompanying notes to consolidated financial statements.
PAGE 3
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three Months Ended March 31, 1998 and 1997
(Unaudited)
Three Months Ended
March 31,
------------------
1998 1997
---- ----
(In thousands of dollars,
except per share data)
Revenues:
Premiums written:
Direct $177,797 $155,289
Assumed 1,969 2,794
Ceded (3,279) (2,477)
-------- --------
Net premiums written 176,487 155,606
Decrease in unearned premiums 13,334 14,686
-------- --------
Net premiums earned 189,821 170,292
Investment income, net of expenses 34,389 29,508
Realized investment gains, net 10,295 89
Other revenue 9,461 5,202
-------- --------
Total revenues 243,966 205,091
-------- --------
Losses and expenses:
Losses incurred, net 59,438 63,194
Underwriting and other expenses 45,158 38,213
Interest expense 3,630 319
Ceding commission (337) (542)
-------- --------
Total losses and expenses 107,889 101,184
-------- --------
Income before tax 136,077 103,907
Provision for income tax 42,030 31,471
-------- --------
Net income $ 94,047 $ 72,436
======== ========
Earnings per share (notes 4 and 5):
Basic $ 0.83 $ 0.61
======== ========
Diluted $ 0.81 $ 0.61
======== ========
Weighted average common shares
outstanding (shares in thousands, notes 4 and 5) 115,741 119,323
======== ========
Dividends per share (note 4) $ 0.025 $ 0.02
======== ========
See accompanying notes to consolidated financial statements.
PAGE 4
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Three Months Ended March 31, 1998 and 1997
(Unaudited)
Three Months Ended
March 31,
--------------------
1998 1997
---- ----
(In thousands of dollars)
Cash flows from operating activities:
Net income $ 94,047 $ 72,436
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred insurance policy
acquisition costs 4,564 7,317
Increase in deferred insurance policy
acquisition costs (3,619) (6,117)
Depreciation and amortization 1,892 2,017
Decrease in accrued investment income 1,478 4,790
Decrease in reinsurance recoverable on loss
reserves 1,653 1,028
Decrease in reinsurance recoverable on unearned
premiums 1,305 1,605
Increase in loss reserves 19,051 22,932
Decrease in unearned premiums (14,639) (16,291)
(Increase) decrease in investment in
unconsolidated subsidiary (1,920) 500
Other 28,653 15,226
-------- --------
Net cash provided by operating activities 132,465 105,443
-------- --------
Cash flows from investing activities:
Purchase of equity securities (3,886) -
Purchase of fixed maturities (242,572) (165,998)
Proceeds from sale of equity securities 106,223 -
Proceeds from sale or maturity of fixed maturities 104,837 109,782
-------- --------
Net cash used in investing activities (35,398) (56,216)
-------- --------
Cash flows from financing activities:
Dividends paid to shareholders (2,850) (2,361)
Net increase (decrease) in notes payable 5,000 (35,424)
Reissuance of treasury stock 9,776 9,090
-------- --------
Net cash provided by (used in) financing activities 11,926 (28,695)
-------- --------
Net increase in cash and short-term investments 108,993 20,532
Cash and short-term investments at beginning of period 119,626 143,975
-------- --------
Cash and short-term investments at end of period $228,619 $164,507
======== ========
See accompanying notes to consolidated financial statements.
PAGE 5
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
March 31, 1998
(Unaudited)
Note 1 - Basis of presentation
The accompanying unaudited consolidated financial
statements of MGIC Investment Corporation (the "Company") and
its wholly-owned subsidiaries have been prepared in accordance
with the instructions to Form 10-Q and do not include all of
the other information and disclosures required by generally
accepted accounting principles. These statements should be
read in conjunction with the consolidated financial statements
and notes thereto for the year ended December 31, 1997
included in the Company's Annual Report on Form 10-K for that
year.
The accompanying consolidated financial statements have
not been audited by independent accountants in accordance with
generally accepted auditing standards, but in the opinion of
management such financial statements include all adjustments,
consisting only of normal recurring accruals, necessary to
summarize fairly the Company's financial position and results
of operations. The results of operations for the three
months ended March 31, 1998 may not be indicative of the
results that may be expected for the year ending December 31,
1998.
Note 2 - Notes payable
During 1997, the Company repurchased 4,655,985 shares of
its outstanding common stock from a financial intermediary at
a cost of approximately $248 million. Funds to repurchase the
shares were primarily provided by borrowings under a credit
facility evidenced by notes payable. The weighted average
interest rate on the notes at March 31, 1998 was 5.92% per
annum. The interest rate on borrowings under the facility is
variable.
The credit facility provides for up to $250 million of
availability which decreases by $25 million each year
beginning June 20, 1998 through June 20, 2001. Any
outstanding borrowings under the facility mature on June 20,
2002. The Company has the option, on notice to the lenders,
to prepay any borrowings subject to certain provisions. At
March 31, 1998 outstanding borrowings under the credit
facility were generally for terms of less than one year.
Under the terms of the credit facility, the Company must
maintain shareholders' equity of at least $900 million and
MGIC must maintain a claims paying ability rating of AA- or
better with Standard & Poor's Corporation ("S&P"). At March
31, 1998, the Company had shareholders' equity of $1,578
million and MGIC had a claims paying ability rating of AA+
from S&P.
During 1998 MGIC guaranteed one half of a $50 million
credit facility for C-BASS, a 48% owned unconsolidated
subsidiary. The facility matures in January 1999.
PAGE 6
Note 3 - Contingencies
The Company is involved in litigation in the ordinary
course of business. In the opinion of management, the
ultimate disposition of the pending litigation will not have a
material adverse effect on the financial position of the
Company.
In addition to the litigation referred to above, Mortgage
Guaranty Insurance Corporation ("MGIC") is a defendant in a
lawsuit commenced by a borrower challenging the necessity of
maintaining mortgage insurance in certain circumstances,
primarily when the loan-to-value ratio is below 80%. The
lawsuit purports to be brought on behalf of a class of
borrowers. This case appears to be based to some degree upon
guidelines issued by the Federal Home Loan Mortgage
Corporation or the Federal National Mortgage Association to
their respective mortgage servicers under which the mortgage
servicers may be required in certain circumstances to cancel
borrower-purchased insurance upon the borrower's request. The
plaintiff alleges that MGIC has a common law duty to inform a
borrower that the insurance may be cancelled in these
circumstances. The relief sought is equitable relief as well
as the return of premiums paid after the insurance was
cancellable under the applicable guidelines. The Company
believes that MGIC has a meritorious defense to this action in
that, in the absence of a specific statute (no statutory duty
other than under a general consumer fraud statute is alleged),
there appears to be no legal authority requiring a mortgage
insurer to inform a borrower that insurance may be cancelled.
Summary judgment was granted to MGIC in another case involving
similar issues. Similar cases are pending against other
mortgage insurers, mortgage lenders and mortgage loan
servicers.
Note 4 - Shareholders' equity
On June 2, 1997 the Company effected a two-for-one stock
split of the Company's common stock in the form of a 100%
stock dividend. The prior year share, per share and certain
equity amounts set forth in the accompanying financial
statements have been adjusted to take into account the stock
split.
PAGE 7
Note 5 - Earnings per share
The Company's basic and diluted earnings per share ("EPS")
have been calculated in accordance with Statement of Financial
Accounting Standards No. 128, Earnings Per Share ("SFAS 128").
The following is a reconciliation of the weighted-average
number of shares used for basic EPS and diluted EPS.
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(Shares in thousands)
Weighted-average shares - Basic EPS 113,989 118,108
Common stock equivalents 1,752 1,215
------- -------
Weighted-average shares - Diluted EPS 115,741 119,323
======= =======
Earnings per share for 1997 has been restated to reflect
the provisions of SFAS 128. Previously reported EPS for 1997,
after adjustment for the stock split, equaled diluted EPS
under SFAS 128.
Note 6 - New accounting standards
Effective January 1, 1998, the Company adopted Statement
of Financial Accounting Standards No. 130, Reporting
Comprehensive Income ("SFAS 130"). The statement
establishes standards for the reporting and display of
comprehensive income and its components in annual financial
statements. The Company's total comprehensive income, as
calculated per SFAS 130, was as follows:
Three Months Ended March 31,
----------------------------
1998 1997
---- ----
(In thousands of dollars)
Net income $ 94,047 $ 72,436
Other comprehensive loss (10,792) (22,851)
-------- ---------
Total comprehensive income $ 83,255 $ 49,585
======== ========
The difference between the Company's net income and
total comprehensive income for the three months ended March
31, 1998 and 1997 is primarily the change in unrealized
appreciation on investments, net of tax.
PAGE 8
Note 7 - Subsequent events
On May 7, 1998, the Company's Board of Directors
authorized the repurchase of shares of the Company's common
stock with an aggregate purchase price of up to $250 million.
The Company's previous $250 million stock repurchase program
was completed during 1997. The Company expects to fund the
repurchase program through a bank loan facility, which the
Company is in the process of arranging, and from operating
cash flow.
At the Company's May 7, 1998 annual shareholders' meeting,
shareholders approved an increase in the number of authorized
shares of common stock from 150 million to 300 million shares
and approved a class of preferred stock of 10 million shares.
PAGE 9
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Consolidated Operations
Three Months Ended March 31, 1998 Compared With Three Months
Ended March 31, 1997
Net income for the three months ended March 31, 1998 was
$94.0 million, compared to $72.4 million for the same period
of 1997, an increase of 30%. After giving effect to the
Company's two-for-one stock split, effective June 2, 1997,
diluted earnings per share for the three months ended March
31, 1998 was $0.81 compared to $0.61 in the same period last
year, an increase of 33%. See notes 4 and 5 to the
consolidated financial statements.
The amount of new primary insurance written by Mortgage
Guaranty Insurance Corporation ("MGIC") during the three
months ended March 31, 1998 was $8.5 billion, compared to $6.5
billion in the same period of 1997. Refinancing activity
accounted for 35% of new primary insurance written in the
first quarter of 1998, compared to 17% in the first quarter of
1997.
New insurance written for the first quarter of 1998
reflected an increase in the usage of the monthly premium
product to 95% of new insurance written from 92% of new
insurance written in the first quarter of 1997. New insurance
written for adjustable-rate mortgages decreased to 13% of new
insurance written in the first quarter of 1998 from 26% of new
insurance written in the same period of 1997. Also, mortgages
with loan-to-value ratios in excess of 90% but not more than
95% decreased to 34% of new insurance written in the first
quarter of 1998 from 42% of new insurance written in the same
period of 1997.
The $8.5 billion of new primary insurance written during
the first quarter of 1998 was offset by the cancellation of
$8.7 billion of insurance in force, and resulted in a net
decrease of $.2 billion in primary insurance in force,
compared to new primary insurance written of $6.5 billion, the
cancellation of $5.1 billion, and a net increase of $1.4
billion in insurance in force during the first quarter of
1997. Direct primary insurance in force was $138.3
billion at March 31, 1998 compared to $138.5 billion at
December 31, 1997 and $132.8 billion at March 31, 1997. In
addition to providing primary insurance coverage, the Company
also insures pools of mortgage loans. New pool risk written
during the three months ended March 31, 1998 was $144 million,
which was virtually all agency pool insurance. The Company's
direct pool risk in force at March 31, 1998 was $730.7 million
compared to $261.3 million at March 31, 1997 and is expected
to increase during the remainder of 1998 as a result of
outstanding commitments to write additional agency pool
insurance.
PAGE 10
Cancellation activity increased during 1997 and the first
quarter of 1998 due to favorable mortgage interest rates which
resulted in a decrease in the MGIC persistency rate
(percentage of insurance remaining in force from one year
prior) to 78.4% at March 31, 1998 from 82.7% at March 31,
1997. Cancellation activity could increase due to factors
other than refinances and home sales if proposed legislation
regarding cancellation of mortgage insurance is enacted.
Net premiums written were $176.5 million during the first
quarter of 1998, compared to $155.6 million during the first
quarter of 1997, an increase of 13%. Net premiums earned were
$189.8 million for the first quarter of 1998, an increase of
11% over the $170.3 million for the same period in 1997. The
increases were primarily a result of the growth in insurance
in force since March 31, 1997 and renewal premiums on mortgage
loans with deeper coverages.
Investment income for the first quarter of 1998 was $34.4
million, an increase of 17% over the $29.5 million in the
first quarter of 1997. This increase was primarily the result
of an increase in the amortized cost of average invested
assets to $2.4 billion for the first quarter of 1998 from $2.0
billion for the first quarter of 1997, an increase of 17%. The
portfolio's average pre-tax investment yield was 5.8% for the
first quarter of 1998 and 5.9% for the same period in 1997.
The portfolio's average after-tax investment yield was 4.9%
for the first quarter of 1998 and 5.0% for the same period in
1997. The Company realized gains of $10.3 million during the
three months ended March 31, 1998 resulting primarily from the
sale of equity securities compared to minimal realized gains
on investments during the same period in 1997.
Other revenue was $9.5 million for the first quarter of
1998 compared to $5.2 million for the same period in 1997.
The increase is primarily the result of $1.9 million of equity
earnings from C-BASS, the Company's joint venture with Enhance
Financial Services Group Inc. and an increase in fee-based
services for underwriting.
Net losses incurred decreased 6% to $59.4 million during
the first quarter of 1998 from $63.2 million during the first
quarter of 1997. Such decrease was primarily attributed to a
decrease in the primary insurance notice inventory during the
first quarter as compared to an increase in the primary
insurance notice inventory during the comparable period of
1997, along with improvements in certain high-cost geographic
regions. At March 31, 1998, 59% of MGIC's insurance in force
was written during the preceding thirteen quarters, compared
to 63% at March 31, 1997. The highest claim frequency years
have typically been the third through fifth year after the
year of loan origination. However, the pattern of claims
frequency for refinance loans may be different from the
historical pattern of other loans.
Underwriting and other expenses increased to $45.2
million in the first quarter of 1998 from $38.2 million in the
first quarter of 1997, an increase of 18%. This increase was
primarily due to an increase in expenses associated with the
fee-based services for underwriting and an increase in premium
tax due to higher premiums written.
PAGE 11
Interest expense increased to $3.6 million in the first
quarter of 1998 from $.3 million during the same period in
1997. Interest expense in the current period is the result of
debt incurred to fund the stock repurchase program. Interest
expense for the first quarter of 1997 represents interest
prior to the repayment in January 1997 of the mortgages
payable. See note 2 to the consolidated financial statements.
The consolidated insurance operations loss ratio was 31.3%
for the first quarter of 1998 compared to 37.1% for the first
quarter of 1997. The consolidated insurance operations expense
and combined ratios were 19.9% and 51.2%, respectively, for
the first quarter of 1998 compared to 21.1% and 58.2% for the
first quarter of 1997.
The effective tax rate was 30.9% in the first quarter of
1998, compared to 30.3% in the first quarter of 1997. During
both periods, the effective tax rate was below the statutory
rate of 35%, reflecting the benefits of tax-preferenced
investment income. The higher effective tax rate in 1998
resulted from a lower percentage of total income before tax
being generated from tax-preferenced investments.
Liquidity and Capital Resources
The Company's consolidated sources of funds consist
primarily of premiums written and investment income. The
Company generated positive cash flows from operating
activities of $132.5 million for the three months ended March
31, 1998, as shown on the Consolidated Statement of Cash
Flows. Funds are applied primarily to the payment of claims
and expenses. The Company's business does not require
significant capital expenditures on an ongoing basis. Positive
cash flows are invested pending future payments of claims and
other expenses; cash flow shortfalls, if any, could be funded
through sales of short-term investments and other investment
portfolio securities.
Consolidated total investments were $2.5 billion at March
31, 1998, compared to $2.4 billion at December 31, 1997, an
increase of 5%. This increase is due primarily to positive
cash flow from operations. The investment portfolio includes
unrealized gains on securities marked to market at March 31,
1998 and December 31, 1997 of $112.6 million and $129.2
million, respectively. As of March 31, 1998, the Company had
$222.6 million of short-term investments with maturities of
90 days or less. In addition, at March 31, 1998, based on
amortized cost, the Company's total investments, which were
primarily comprised of fixed maturities, were approximately
98% invested in "A" rated and above, readily marketable
securities, concentrated in maturities of less than 15 years.
Consolidated loss reserves increased 3% to $617.7 million
at March 31, 1998 from $598.7 million at December 31, 1997.
Consistent with industry practices, the Company does not
establish loss reserves for future claims on insured loans
which are not currently in default.
PAGE 12
Consolidated unearned premiums decreased $14.6 million
from $198.3 million at December 31, 1997 to $183.7 million at
March 31, 1998, primarily reflecting the continued high level
of monthly premium policies written, for which there is no
unearned premium. Reinsurance recoverable on unearned
premiums decreased $1.3 million to $7.9 million at March 31,
1998 from $9.2 million at December 31, 1997, primarily
reflecting the reduction in unearned premiums.
Consolidated shareholders' equity increased to $1.6
billion at March 31, 1998, from $1.5 billion at December 31,
1997, an increase of 6%. This increase consisted of $94.0
million of net income during the first three months of 1998
and $10.7 million from the reissuance of treasury stock offset
by a decrease in net unrealized gains on investments of $10.8
million, net of tax, and dividends declared of $2.8 million.
MGIC is the principal insurance subsidiary of the Company.
MGIC's risk-to-capital ratio was 15.1:1 at March 31, 1998
compared to 15.7:1 at December 31, 1997. The decrease was due
to MGIC's increased policyholders' reserves, partially offset
by the net additional risk in force of $77.1 million, net of
reinsurance, during the first three months of 1998.
The Company's combined insurance risk-to-capital ratio was
15.7:1 at March 31, 1998, compared to 16.4:1 at December 31,
1997. The decrease was due to the same reasons as described
above.
See note 7 for discussion regarding the Company's stock
repurchase program.
Year 2000 Compliance
Almost all of the Company's computer systems, including
all of the systems which are integral to its business, either
have been originally developed to be Year 2000 compliant or
have been reprogrammed. The Company plans to reprogram the
remaining systems and to complete tests of all systems for
Year 2000 compliance by the end of 1998. All costs incurred
through the first quarter of 1998 for systems for Year 2000
compliance have been expensed and were immaterial. The costs
of the remaining reprogramming and testing are expected to be
immaterial. Some of the Company's computer systems integral
to its business interface with computer systems of third
parties. Virtually all transactions with systems operated by
third parties involve nationally recognized service bureaus,
Fannie Mae, Freddie Mac or other companies that were among the
top 50 mortgage servicers in 1997. The Company is assuming
that these third parties will successfully address Year 2000
compliance for their own systems and is planning to work with
many of these third parties in 1998 to coordinate testing of
Year 2000 system interfaces. As a result, the Company does
not anticipate Year 2000 compliance arising from interfaces
with third-party systems will have a material impact on its
operations.
PAGE 13
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT
MARKET RISK
At March 31, 1998, the Company had no derivative financial
instruments in its investment portfolio. The Company places
its investments in instruments that meet high credit quality
standards, as specified in the Company's investment policy
guidelines; the policy also limits the amount of credit
exposure to any one issue, issuer and type of instrument. At
March 31, 1998, the average duration of the Company's
investment portfolio was 5.7 years. The effect of a 1%
increase/decrease in market interest rates would result in a
5.7% decrease/increase in the value of the Company's
investment portfolio.
The Company's borrowings under the credit facility are
subject to an interest rate that is variable. Changes in
market interest rates would have minimal impact on the value
of the note payable. See note 2 to the consolidated financial
statements.
SAFE HARBOR STATEMENT
The following is a "Safe Harbor" Statement under the
Private Securities Litigation Reform Act of 1995, which
applies to all statements in this Form 10-Q, which are not
historical facts and to all oral statements that the
Company may make from time to time relating thereto which
are not historical facts (such written and oral statements
are herein referred to as "forward looking statements"):
Actual results may differ materially from those
contemplated by the forward looking statements. These
forward looking statements involve risks and
uncertainties, including but not limited to, the
following risks:
- that demand for housing generally or in
MGIC's market segment may be adversely affected
by changes in interest rates, adverse economic
conditions, or other reasons;
- that government housing policy may change,
including changes in Federal Housing
Administration ("FHA") loan limits, and changes
in the statutory charters and coverage
requirements of Freddie Mac and Fannie Mae; that
MGIC's market share of new insurance written or
the amount of new insurance written may be
adversely affected as a result of factors
affecting housing demand, government housing
policy and Freddie Mac and Fannie Mae discussed
above; or as a result of underwriting changes by
the Company; actions taken by the Company's
competitors, including their underwriting
criteria, pricing or products offered; decisions
by lenders to originate low down payment loans
using substitutes for mortgage insurance,
including self-insurance, or to the extent
legally permissible, to provide insurance
themselves; or for other reasons;
PAGE 14
- that cancellations may increase and
persistency may decrease due to refinancings,
changes in Freddie Mac or Fannie Mae
cancellation policies or legislation regarding
mortgage insurance cancellation, or due to other
factors; and
- that delinquencies, incurred losses or paid
losses may increase as a result of adverse
changes in regional or national economies which
affect borrowers' incomes or housing values.
The foregoing "Safe Harbor" Statement also identifies
certain material risks of the Company's business.
PAGE 15
PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits - The exhibits listed in the
accompanying Index to Exhibits are filed
as part of this Form 10-Q.
(b) Reports on Form 8-K - No reports were
filed on Form 8-K during the quarter
ended March 31, 1998.
PAGE 16
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed
on its behalf by the undersigned thereunto duly authorized, on
May 14, 1998.
MGIC INVESTMENT CORPORATION
/s/ J. Michael Lauer
------------------------------
J. Michael Lauer
Executive Vice President and
Chief Financial Officer
/s/ Patrick Sinks
------------------------------
Patrick Sinks
Vice President, Controller and
Chief Accounting Officer
PAGE 17
INDEX TO EXHIBITS
(Item 6)
Exhibit
Number Description of Exhibit
- ------- ----------------------
11.1 Statement Re Computation of Net Income
Per Share
27 Financial Data Schedule
PAGE 18
EXHIBIT 11.1
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF NET INCOME PER SHARE (1)
Three Months Ended March 31, 1998 and 1997
Three Months Ended
March 31,
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1998 1997
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(In thousands of dollars,
except per share data)
BASIC EARNINGS PER SHARE
Adjusted shares outstanding 113,989 118,108
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Net income $94,047 $72,436
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Basic earnings per share $ 0.83 $ 0.61
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DILUTED EARNINGS PER SHARE
Adjusted shares outstanding:
Average common shares outstanding 113,989 118,108
Net shares to be issued upon exercise of
dilutive stock options after applying
treasury stock method 1,752 1,215
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Adjusted shares outstanding 115,741 119,323
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Net income $94,047 $72,436
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Diluted earnings per share $ 0.81 $ 0.61
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(1) The prior year share and per share amounts have been adjusted to reflect
the Company's two-for-one stock split in the form of a 100% stock
dividend effective June 2, 1997.