MGIC Investment Corporation Reports Third Quarter 2023 Results
Third Quarter 2023 Net Income of $182.8 million or $0.64 per Diluted Share
Third Quarter 2023 Adjusted Net Operating Income (Non-GAAP) of $183.0 million or $0.64 per Diluted Share
MILWAUKEE, Oct. 31, 2023 /PRNewswire/ -- MGIC Investment Corporation (NYSE: MTG) today reported operating and financial results for the third quarter of 2023. Net income for the quarter was $182.8 million, or $0.64 per diluted share, compared with net income of $249.6 million, or $0.81 per diluted share, for the third quarter of 2022.
Adjusted net operating income for the third quarter of 2023 was $183.0 million, or $0.64 per diluted share, compared with $264.2 million, or $0.86 per diluted share, for the third quarter of 2022. 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") said, "We delivered another quarter of solid financial results. We continue to benefit from favorable credit trends, prudent risk management strategies, and the talent and dedication of our people. We remain in an excellent position to provide our customers with quality offerings and superior service and deliver long-term value for our shareholders."
Third Quarter 2023 Summary
- New insurance written was $14.6 billion, compared with $12.4 billion in the second quarter of 2023 and $19.6 billion in the third quarter of 2022.
- Annual persistency, or the percentage of insurance remaining in force from one year prior, was 86.3% at September 30, 2023, compared with 85.9% at June 30, 2023, and 78.3% at September 30, 2022.
- Insurance in force of $294.3 billion at September 30, 2023, increased by 0.6% during the quarter and by 0.2% compared with September 30, 2022.
- Primary delinquency inventory of 24,720 loans at September 30, 2023, increased from 23,823 loans at June 30, 2023, and decreased from 25,878 loans at September 30, 2022.
- The percentage of primary loans insured that were delinquent at September 30, 2023, was 2.14%, compared with 2.05% at June 30, 2023, and 2.17% at September 30, 2022.
- The loss ratio for the third quarter of 2023 was (0.0%), compared with (7.3)% for the second quarter of 2023, and (41.7)% for the third quarter of 2022.
- The underwriting expense ratio associated with our insurance operations for the third quarter of 2023 was 22.2%, compared with 24.1% for the second quarter of 2023, and 24.6% for the third quarter of 2022.
- The net premium yield was 32.9 basis points in the third quarter of 2023, compared with 33.2 basis points for the second quarter of 2023, and 34.7 basis points for the third quarter of 2022.
- The in force portfolio yield was 38.6 in the third quarter of 2023 and the second quarter of 2023, compared with 39.0 for the third quarter of 2022.
- Book value per common share outstanding as of September 30, 2023, increased to $17.37, or 10%, from $15.82 as of December 31, 2022, and 15% from $15.16 as of September 30, 2022. Book value per share includes $(1.55) in net unrealized gains (losses) on securities compared with $(1.39) as of December 31, 2022, and $(1.50) as of September 30, 2022.
- We paid a dividend of $0.115 per common share to shareholders during the third quarter of 2023, an increase of 15% from the last quarterly dividend paid.
- We repurchased 3.9 million shares of common stock at an average cost of $16.99 per share.
- We exercised our option to redeem the outstanding principal of $21.1 million on our 9% Convertible Junior Debentures. Prior to the redemption date, substantially all holders elected to convert into shares of our common stock. We elected to pay cash in lieu of issuing shares. This will reduce our potentially dilutive shares by 1.6 million.
Fourth Quarter 2023 Activities
- Through October 27, 2023 we repurchased an additional 2.2 million shares of our common stock at an average cost of $16.87 per share.
- We declared a dividend of $0.115 per common share to shareholders payable on November 28, 2023 to shareholders of record at the close of business on November 9, 2023.
- MGIC paid a $300 million dividend to our holding company.
- In October, 2023, Home Re 2019-1 Ltd., Home Re 2021-1 Ltd., and Home Re 2021-2 Ltd conducted tender offers for certain tranches of the mortgage insurance-linked notes that supported the reinsurance agreement with MGIC. In aggregate, $384.9 million of outstanding notes were purchased. The reinsurance coverage corresponding to the tendered notes was terminated. MGIC will incur approximately $8 million of additional ceded premium in the fourth quarter associated with the cost of the tender premiums and associated expense.
- In October, we executed a $330 million excess of loss reinsurance agreement (executed through an insurance linked notes transaction) that covers the vast majority of policies issued June 1, 2022 through August 31, 2023.
- We have elected to terminate our 2020 quota share reinsurance transaction effective December 31, 2023 and expect to incur termination fees of approximately $5 million.
- We agreed to terms on a 30% quota share transaction with a group of unaffiliated reinsurers covering most of our new insurance written in 2024.
- We appointed Michael Thompson to our Board of Directors.
Revenues
Total revenues for the third quarter of 2023 were $296.5 million, compared with $292.8 million in the third quarter last year. The increase primarily reflects an increase in net investment income, partially offset by a decrease in net premiums earned. Premiums earned in the third quarter of 2023 were $241.3 million compared with $252.1 million for the same period last year. Net premiums written for the quarter were $234.5 million, compared with $242.3 million for the same period last year. The decrease in net premiums written and earned in the current period compared with the same period in the prior year was primarily due to an increase in ceded premiums that was the result of a decrease in the profit commission earned on our quota share reinsurance transactions.
Losses and expenses
Losses incurred
Net losses incurred in the third quarter of 2023 were $(0.1) million, compared with $(105.1) million in the same period last year. In the third quarter of 2023, new delinquency notices added approximately $48.1 million to losses incurred, while our re-estimation of loss reserves resulted in favorable development of approximately $48.2 million. In the third quarter of 2022, new delinquency notices added $35.9 million to losses incurred, while our re-estimation of reserves on previous delinquency notices resulted in $140.9 million of favorable loss development. The favorable development for both periods primarily resulted from a decrease in the expected claim rate on previously received delinquencies.
Underwriting and other expenses
Net underwriting and other expenses were $52.9 million in the third quarter of 2023 compared with $61.7 million in the same period last year. The decrease in net underwriting and other expenses was primarily due to a decrease in expenses related to professional and consulting services and pension expenses. Pension expenses were significantly higher in the third quarter of 2022 due to settlement costs.
Loss on debt extinguishment
The third quarter 2022 loss on debt extinguishment of $11.6 million primarily 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 $4.9 billion as of September 30, 2023, compared with $4.6 billion as of December 31, 2022, and $4.5 billion as of September 30, 2022. The increase from December 31, 2022 primarily reflects net income, offset by stock repurchases and dividends paid to shareholders.
- MGIC's PMIERs Available Assets totaled $6.0 billion, or $2.4 billion above its Minimum Required Assets as of September 30, 2023, compared with PMIERs Available Assets of $5.7 billion, or $2.3 billion above its Minimum Required Assets as of December 31, 2022 and PMIERs Available assets of $5.9 billion, or $2.6 billion above its Minimum Required Assets as of September 30, 2022.
Other Balance Sheet and Liquidity Metrics
- Total consolidated assets were $6.3 billion as of September 30, 2023, compared with $6.2 billion as of December 31, 2022 and September 30, 2022.
- The fair value of our consolidated investment portfolio, cash and cash equivalents was $5.9 billion as of September 30, 2023, compared with $5.8 billion as of December 31, 2022, and $5.7 billion as of September 30, 2022.
- The fair value of investments, cash and cash equivalents at the holding company was $723 million as of September 30, 2023, compared with $647 million as of December 31, 2022, and $352 million as of September 30, 2022.
- Consolidated debt was $643 million as of September 30, 2023, compared with $663 million as of December 31, 2022 and September 30, 2022.
Conference Call and Webcast Details
MGIC Investment Corporation will hold a conference call November 1, 2023, 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://register.vevent.com/register/BI8e70f6e5420d49c19decaee6a098293e 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 4, 2023.
About MGIC
Mortgage Guaranty Insurance Corporation (MGIC) (www.mgic.com), the principal subsidiary of MGIC Investment Corporation, serves lenders throughout the United States, helping families achieve homeownership sooner by making affordable low-down-payment mortgages a reality through the use of private mortgage insurance. At September 30, 2023, MGIC had $294.3 billion of primary insurance in force covering 1.2 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.
(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. |
(2) | Gains and losses on debt extinguishment. Gains and losses on debt extinguishment result from discretionary activities that are undertaken to enhance our capital position, improve our debt profile, and/or reduce potential dilution from our outstanding convertible debt. |
(3) | Infrequent or unusual non-operating items. Items that are non-recurring in nature and are not part of our primary operating activities. |
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES | ||||||||
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (UNAUDITED) | ||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
(In thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | ||||
Net premiums written | $ 234,491 | $ 242,307 | $ 695,907 | $ 729,293 | ||||
Revenues | ||||||||
Net premiums earned | $ 241,277 | $ 252,111 | $ 726,103 | $ 763,048 | ||||
Net investment income | 55,375 | 42,549 | 156,938 | 121,116 | ||||
Net gains (losses) on investments and other financial instruments | (695) | (3,258) | (13,380) | (8,776) | ||||
Other revenue | 548 | 1,397 | 1,484 | 5,143 | ||||
Total revenues | 296,505 | 292,799 | 871,145 | 880,531 | ||||
Losses and expenses | ||||||||
Losses incurred, net | (77) | (105,054) | (11,322) | (223,426) | ||||
Underwriting and other expenses, net | 52,932 | 61,654 | 182,080 | 175,557 | ||||
Loss on debt extinguishment | — | 11,632 | — | 40,130 | ||||
Interest expense | 9,254 | 10,300 | 28,005 | 38,673 | ||||
Total losses and expenses | 62,109 | (21,468) | 198,763 | 30,934 | ||||
Income before tax | 234,396 | 314,267 | 672,382 | 849,597 | ||||
Provision for income taxes | 51,552 | 64,642 | 143,937 | 175,691 | ||||
Net income | $ 182,844 | $ 249,625 | $ 528,445 | $ 673,906 | ||||
Net income per diluted share | $ 0.64 | $ 0.81 | $ 1.83 | $ 2.15 | ||||
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES | ||||||||
EARNINGS PER SHARE (UNAUDITED) | ||||||||
Three Months Ended September 30, | Nine Months Ended September 30, | |||||||
(In thousands, except per share data) | 2023 | 2022 | 2023 | 2022 | ||||
Net income | $ 182,844 | $ 249,625 | $ 528,445 | $ 673,906 | ||||
Interest expense, net of tax: | ||||||||
9% Convertible Junior Subordinated Debentures due 2063 | 276 | 620 | 1,025 | 2,851 | ||||
Diluted net income available to common shareholders | $ 183,120 | $ 250,245 | $ 529,470 | $ 676,757 | ||||
Weighted average shares - basic | 281,757 | 302,622 | 286,184 | 309,097 | ||||
Effect of dilutive securities: | ||||||||
Unvested restricted stock units | 2,624 | 1,902 | 2,239 | 1,848 | ||||
9% Convertible Junior Subordinated Debentures due 2063 | 1,219 | 2,670 | 1,501 | 4,084 | ||||
Weighted average shares - diluted | 285,600 | 307,194 | 289,924 | 315,029 | ||||
Net income per diluted share | $ 0.64 | $ 0.81 | $ 1.83 | $ 2.15 | ||||
NON-GAAP RECONCILIATIONS | |||||||||||||
Reconciliation of Income before tax / Net income to Adjusted pre-tax operating income / Adjusted net operating income | |||||||||||||
Three Months Ended September 30, | |||||||||||||
2023 | 2022 | ||||||||||||
(In thousands, except per share amounts) | Pre-tax | Tax Effect | Net | Pre-tax | Tax Effect | Net (after-tax) | |||||||
Income before tax / Net income | $ 234,396 | $ 51,552 | $ 182,844 | $ 314,267 | $ 64,642 | $ 249,625 | |||||||
Adjustments: | |||||||||||||
Loss on debt extinguishment | — | — | — | 11,632 | 2,443 | 9,189 | |||||||
Net realized investment losses | 237 | 50 | 187 | 6,854 | 1,439 | 5,415 | |||||||
Adjusted pre-tax operating income / Adjusted net operating income | $ 234,633 | $ 51,602 | $ 183,031 | $ 332,753 | $ 68,524 |
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