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18.10.2016 12:50
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MGIC Investment Corporation Reports Third Quarter 2016 Results
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PR Newswire
MILWAUKEE, Oct. 18, 2016
MILWAUKEE, Oct. 18, 2016 /PRNewswire/ -- MGIC Investment Corporation (NYSE: MTG) today reported operating and financial results for the quarter ended September 30, 2016. Net income for the quarter ended September 30, 2016 was $56.6 million, or $0.14 per diluted share. Net income for the quarter ended September 30, 2015 was $822.9 million, or $1.78 per diluted share. Net income in the third quarter of 2015 included $739.3 million associated with the change in the Company's deferred tax asset valuation allowance. Net operating income, which is defined below, was $102.2 million, or $0.25 per diluted share. Net operating income for the quarter ended September 30, 2015, was $83.1 million, or $0.20 per diluted share.
During the quarter we issued $425 million of 5.75% 2023 Senior Notes. Using a portion of these net proceeds and our common stock, we purchased $292.4 million of the 2% 2020 Convertible Senior Notes. This repurchase resulted in a pretax loss on debt extinguishment of $75.2 million. We used, and intend to use in the future, a portion of the net proceeds of the offering to purchase shares of our common stock to offset the shares used as partial consideration in the purchase of the 2% Convertible Senior Notes. Any remaining proceeds from the debt issuance will be held at the holding company for general corporate purposes. The transaction eliminated 42.1 million potentially dilutive shares.
Earlier this year, MGIC purchased $132.7 million of our holding company's 9% Junior Convertible Debentures. These debentures are eliminated on our consolidated financial statements. Additionally, during the first half of 2016 we purchased $188.5 million of our 2017 5% Convertible Senior Notes. These earlier transactions eliminated a total of approximately 23.9 million potentially dilutive shares.
Patrick Sinks, CEO of MTG and Mortgage Guaranty Insurance Corporation ("MGIC"), said, "I am pleased to report that our insurance in force continued to grow as we added $14.2 billion of high quality new insurance, the newer books of business continue to generate low levels of new delinquent notices, the legacy books continue to runoff, and we maintained our traditionally low expense ratio." Sinks added, "In August we accessed the senior debt markets and continued our efforts to improve and simplify our capital profile, and reduce the number of potentially dilutive shares. Finally, the holding company received another $16 million dividend from MGIC, bringing the year to date total to $48 million."
Notable items for the quarter include:
| | | Q3 2016 | | Q3 2015 | | Change | |||||
| New Insurance Written (billions) | | $ | 14.2 | | | $ | 12.4 | | | 14.4 | % |
| Insurance in force (billions) (1) | | $ | 180.1 | | | $ | 172.7 | | | 4.3 | % |
| Primary Delinquent Inventory (# loans) (1) | | 51,433 | | | 64,642 | | | (20.4) | % | ||
| Annual Persistency (1) | | 78.3 | % | | 80.0 | % | | | |||
| Consolidated Risk-to-capital ratio | | 12:6:1 | | (2) | 13:6:1 | | (1) | | |||
| GAAP Loss Ratio | | 25.7 | % | | 32.0 | % | | | |||
| GAAP Underwriting Expense Ratio (3) | | 14.7 | % | | 14.4 | % | | | |||
| Provision for (benefit from) income taxes (millions) | | $ | 27.1 | | | $ | (695.6) | | | | |
| Book value per share (4) | | $ | 7.48 | | | $ | 6.33 | | | 18.2 | % |
| | | | | | | | |||||
| 1) As of September 30, 2) preliminary as of September 30, 2016, 3) insurance operations, 4) based on shares outstanding | |||||||||||
Total revenues for the third quarter of 2016 were $273.9 million, compared to $269.5 million in the third quarter last year. Total revenues in the third quarter of 2016 included $5.1 million of net realized investment gains compared to $0.6 million in the third quarter of 2015. Net premiums written for the quarter were $250.3 million, compared to $318.0 million for the same period last year. Net premiums earned were $237.4 million compared to $239.2 million for the same period last year. Net premiums written and earned in the third quarter of 2015 included $69.4 million and $11.6 million, respectively, associated with the previously disclosed restructuring of the April 2013 quota share reinsurance agreement.
New insurance written in the third quarter was $14.2 billion, compared to $12.4 billion in the third quarter of 2015. Persistency, or the percentage of insurance remaining in force from one year prior, was 78.3 percent at September 30, 2016, compared to 79.7 percent at December 31, 2015, and 80.0 percent at September 30, 2015. As of September 30, 2016, MGIC's primary insurance in force was $180.1 billion, compared to $174.5 billion at December 31, 2015, and $172.7 billion at September 30, 2015.
The fair value of MGIC Investment Corporation's investment portfolio, cash and cash equivalents was $5.0 billion at September 30, 2016, compared with $4.8 billion at December 31, 2015, and $5.0 billion at September 30, 2015.
At September 30, 2016, the percentage of loans that were delinquent, excluding bulk loans, was 4.1 percent, compared to 5.1 percent at December 31, 2015, and 5.3 percent at September 30, 2015. Including bulk loans, the percentage of loans that were delinquent at September 30, 2016 was 5.2 percent, compared to 6.3 percent at December 31, 2015, and 6.5 percent at September 30, 2015.
Losses incurred in the third quarter of 2016 were $60.9 million, compared to $76.5 million in the third quarter of 2015. During the third quarter of 2016 there was a $38.0 million reduction in losses incurred due to positive development on our primary loss reserves compared to $39.0 million in the third quarter of 2015. In addition to the positive development, losses incurred in the quarter reflect a lower level of new delinquent notices received and a lower claim rate when compared to the same quarter last year.
Net underwriting and other expenses were $40.4 million in the third quarter, compared to $48.4 million reported for the same period last year. Net underwriting and other expenses in the third quarter of 2015 included $11.6 million that was associated with the previously disclosed restructuring of the April 2013 quota share reinsurance agreement.
In the third quarter of 2016 a tax provision of $27.1 million was recorded compared to a tax benefit of $695.6 million for the same period last year. The increase in the tax provision was a result of the previously disclosed reversal of the company's deferred tax asset valuation allowance in 2015.
Conference Call and Webcast Details
MGIC Investment Corporation will hold a conference call today, October 18, 2016, at 10 a.m. ET to allow securities analysts and shareholders the opportunity to hear management discuss the company's quarterly results. The conference call number is 1-866-961-1484. The call is being webcast and can be accessed at the company's website at http://mtg.mgic.com/. A replay of the webcast will be available on the company's website through November 19, 2016 under "Newsroom."
About MGIC
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. At September 30, 2016, MGIC had $180.1 billion of primary insurance in force covering approximately one 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 both 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 without making any other disclosure and intends to continue to do so in the future. 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 can be found at https://mtg.mgic.com under "Newsroom."
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 issued.
In addition, the current period financial results included in this press release may be affected by additional information that arises prior to the filing of our Form 10-Q for the quarter ended September 30, 2016.
Use of Non-GAAP Financial Measures
We believe that use of the Non-GAAP measures of pretax operating income (loss), net operating income (loss) and net operating income (loss) per diluted share facilitate the evaluation of the company's fundamental financial performance and provide relevant and meaningful information to investors about the ongoing operating results of the company. On a consolidated basis, 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. The measures described below have been established to increase transparency for the purpose of evaluating the fundamental operating trends and enabling more meaningful comparisons with our competitors.
Pretax operating income (loss) is defined as GAAP income (loss) before tax excluding the effects of net realized investment gains (losses), gain (loss) on debt extinguishment, net impairment losses recognized in income (loss) and infrequent or unusual non-operating items.
Net operating income (loss) is defined as GAAP net income (loss) excluding the after-tax effects of net realized investment gains (losses), gain (loss) on debt extinguishment, net impairment losses recognized in income (loss), infrequent or unusual non-operating items, and the effects of changes in our deferred tax valuation allowance. The amounts of adjustments to net income (loss) are tax effected using a federal statutory tax rate of 35%.
Net operating income (loss) per diluted share is calculated by dividing (i) net operating income (loss) adjusted for interest expense on convertible debt, share dilution from convertible debt, and the impact of stock-based compensation arrangements consistent with the accounting standard regarding earnings per share, whenever the impact is dilutive by (ii) diluted weighted average common shares outstanding.
Although pretax operating income (loss) and net operating income (loss) excludes certain items that have occurred in the past and are expected to occur in the future, the excluded items represent those that are: (1) not viewed as part of the operating performance of our primary activities; or (2) impacted by both discretionary and other economic factors and are not necessarily indicative of operating trends. These adjustments, along with the reasons for their treatment, are described below. Other companies may calculate these measures differently, and, therefore, their measures may not be comparable to those used by us.
| (1) | Net realized investment gains (losses). The recognition of net realized investment gains or losses can vary significantly across periods as the timing of individual securities sales is highly discretionary and is influenced by such factors as market opportunities, our tax and capital profile, and overall market cycles. |
| | |
| | Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these realized gains and losses. We do not view them to be indicative of our fundamental operating activities. Therefore, these items are excluded from our calculation of net operating income (loss). |
| | |
| (2) | Gains and losses on debt extinguishment. Gains and losses on debt extinguishment result from discretionary activities that are undertaken to take advantage of market opportunities to strengthen our financial position; therefore, these activities are not viewed as part of our fundamental operating activities and their results and are excluded from our calculation of net operating income (loss). |
| | |
| (3) | Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles, individual issuer performance, and general economic conditions. We do not view these impairment losses to be indicative of fundamental operating activities and we exclude them from our calculation of net operating income (loss). |
| | |
| (4) | Deferred tax asset valuation allowance. The recognition, or reversal, of a valuation allowance against deferred tax assets is subject to significant management judgment and the effects are recorded to the discrete accounting period when recognized or reversed. Such recognition or reversal may significantly impact the discrete accounting period in which it is recorded; however recognition or reversal of a valuation allowance does not impact our cash position or operational activities. Therefore, we do not view the recognition, or reversal, of a valuation allowance against deferred tax assets to be indicative of fundamental operating activities and their effects are excluded from our calculation of net operating income (loss). |
| MGIC INVESTMENT CORPORATION AND SUBSIDIARIES | ||||||||||||||||
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | ||||||||||||||||
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