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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 JUNE 30, 1996
[ ] 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 6/30/96 58,903,459
MGIC INVESTMENT CORPORATION
TABLE OF CONTENTS
Page No.
--------
PART I. FINANCIAL INFORMATION
Item 1. Financial Statements (Unaudited)
Consolidated Balance Sheet as of
June 30, 1996 (Unaudited) and December 31, 1995 3
Consolidated Statement of Operations for the Three and Six
Month Periods Ended June 30, 1996 and 1995 (Unaudited) 4
Consolidated Statement of Cash Flows for the Six Months
Ended June 30, 1996 and 1995 (Unaudited) 5
Notes to Consolidated Financial Statements (Unaudited) 6-7
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 8-13
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 5. Other Information 15
Item 6. Exhibits and Reports on Form 8-K 15
SIGNATURES 16
INDEX TO EXHIBITS 17
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
June 30, 1996 (Unaudited) and December 31, 1995
June 30, December 31,
1996 1995
-------- ------------
ASSETS (In thousands of dollars)
- ------
Investment portfolio:
Securities, available-for-sale, at market value:
Fixed maturities $1,704,550 $1,602,806
Equity securities 3,836 3,836
Short-term investments 81,327 80,579
---------- ----------
Total investment portfolio 1,789,713 1,687,221
Cash 5,424 9,685
Accrued investment income 31,319 29,213
Reinsurance recoverable on loss reserves 31,099 33,856
Reinsurance recoverable on unearned premiums 12,110 15,485
Home office and equipment, net 36,681 38,782
Deferred insurance policy acquisition costs 34,956 37,956
Other assets 21,431 22,521
---------- ----------
Total assets $1,962,733 $1,874,719
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
- ------------------------------------
Liabilities:
Loss reserves $ 426,539 $ 371,032
Unearned premiums 217,534 251,163
Mortgages payable 35,606 35,799
Income taxes payable 15,857 33,686
Checks payable 12,455 9,771
Other liabilities 44,735 51,876
---------- ----------
Total liabilities 752,726 753,327
---------- ----------
Contingencies (note 2)
Shareholders' equity:
Common stock, $1 par value, shares authorized
150,000,000; shares issued 60,555,400;
shares outstanding, 6/30/96 - 58,903,459;
1995 - 58,629,420 60,555 60,555
Paid-in surplus 266,983 259,430
Treasury stock (shares at cost, 6/30/96 - 1,651,941;
1995 - 1,925,980) (7,010) (8,172)
Unrealized appreciation in investments, net of tax 18,236 54,737
Retained earnings 871,243 754,842
---------- ----------
Total shareholders' equity 1,210,007 1,121,392
---------- ----------
Total liabilities and shareholders' equity $1,962,733 $1,874,719
========== ==========
See accompanying notes to consolidated financial statements.
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF OPERATIONS
Three and Six Month Periods Ended June 30, 1996 and 1995
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(In thousands of dollars, except per share data)
Revenues:
Premiums written:
Direct $143,648 $121,314 $268,659 $221,178
Assumed 1,601 2,133 3,262 4,036
Ceded (3,665) (5,304) (6,809) (9,157)
-------- -------- -------- --------
Net premiums written 141,584 118,143 265,112 216,057
Decrease in unearned premiums 9,143 4,215 30,255 20,716
-------- -------- -------- --------
Net premiums earned 150,727 122,358 295,367 236,773
Investment income, net of
expenses 25,191 21,205 49,452 41,500
Realized investment gains
(losses), net 74 4 413 (43)
Other revenue 6,279 5,032 11,676 10,532
-------- -------- -------- --------
Total revenues 182,271 148,599 356,908 288,762
-------- -------- -------- --------
Losses and expenses:
Losses incurred, net 56,889 44,009 113,726 87,347
Underwriting and other
expenses 37,626 35,105 73,330 69,422
Interest expense 944 953 1,891 1,899
Ceding commission (1,301) (1,406) (2,142) (2,473)
-------- -------- -------- --------
Total losses and expenses 94,158 78,661 186,805 156,195
-------- -------- -------- --------
Income before tax 88,113 69,938 170,103 132,567
Provision for income tax 25,463 19,993 48,993 37,404
-------- -------- -------- --------
Net income $ 62,650 $ 49,945 $121,110 $ 95,163
======== ======== ======== ========
Net income per share $ 1.05 $ 0.84 $ 2.04 $ 1.61
======== ======== ======== ========
Weighted average common
shares outstanding (shares
in thousands) 59,466 59,249 59,450 59,188
======== ======== ======== ========
Dividends per share $ 0.04 $ 0.04 $ 0.08 $ 0.08
======== ======== ======== ========
See accompanying notes to consolidated financial statements.
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS
Six Months Ended June 30, 1996 and 1995
(Unaudited)
Six Months Ended
June 30,
--------------------
1996 1995
-------- --------
(In thousands of dollars)
Cash flows from operating activities:
Net income $121,110 $ 95,163
Adjustments to reconcile net income to net cash
provided by operating activities:
Amortization of deferred insurance policy
acquisition costs 16,763 19,580
Increase in deferred insurance policy
acquisition costs (13,763) (16,601)
Depreciation and amortization 4,522 4,175
Increase in accrued investment income (2,106) (3,185)
Decrease in reinsurance recoverable
on loss reserves 2,757 467
Decrease in reinsurance recoverable on unearned
premiums 3,375 3,086
Increase in loss reserves 55,507 44,609
Decrease in unearned premiums (33,629) (23,803)
Other (2,316) (4,535)
-------- --------
Net cash provided by operating activities 152,220 118,956
-------- --------
Cash flows from investing activities:
Purchase of fixed maturities:
Available-for-sale securities (387,210) (246,529)
Held-to-maturity securities - (26,987)
Proceeds from sale or maturity of fixed maturities:
Available-for-sale securities 227,664 70,048
Held-to-maturity securities - 11,007
-------- --------
Net cash used in investing activities (159,546) (192,461)
-------- --------
Cash flows from financing activities:
Dividends paid to shareholders (4,709) (4,680)
Principal repayments on long-term debt (193) (185)
Reissuance of treasury stock 8,715 4,228
-------- --------
Net cash provided by (used in) financing activities 3,813 (637)
-------- --------
Net decrease in cash and short-term investments (3,513) (74,142)
Cash and short-term investments at beginning of year 90,264 167,289
-------- --------
Cash and short-term investments at end of period $ 86,751 $ 93,147
======== ========
See accompanying notes to consolidated financial statements.
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
June 30, 1996
(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, 1995 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 six months ended June 30, 1996 may not be
indicative of the results that may be expected for the year ending
December 31, 1996.
Note 2 - Contingencies
The Internal Revenue Service ("IRS") is presently examining the Company's
income tax returns for 1991 and 1992. The Company has received proposed tax
assessments relating to 1989 and 1990. Management does not agree with all of
the findings of the IRS and has appealed the proposed tax assessments.
In examinations through 1988, the IRS had proposed to delay the deduction
for loss reserves on mortgage loans in default until the lender takes title
to the mortgaged property. In August 1992, this issue was decided in favor
of another private mortgage insurer by the Court of Appeals for the federal
circuit applicable to the Company. However, the IRS has continued to pursue
this position with other private mortgage insurers in other circuits.
Management believes that adequate provision has been made in the
financial statements for any amounts which may become due with respect to the
open years.
The Company is also involved in litigation in the normal 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 if a specified loan-to-value ratio is achieved.
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
specified loan-to-value ratio was achieved. 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.
Similar cases are pending against other mortgage insurers, mortgage lenders
and mortgage loan servicers.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Results of Consolidated Operations
Three Months Ended June 30, 1996 Compared With Three Months Ended
June 30, 1995
Net income for the three months ended June 30, 1996 was $62.7 million,
compared to $49.9 million for the same period of 1995, an increase of 26%.
Net income per share for the three months ended June 30, 1996 was $1.05
compared to $0.84 in the same period last year, an increase of 25%.
The amount of new primary insurance written by Mortgage Guaranty
Insurance Corporation ("MGIC") during the three months ended June 30, 1996
was $8.9 billion, compared to $7.0 billion in the same period of 1995.
Refinancing activity accounted for 19% of new primary insurance written in
the second quarter of 1996, compared to 6% in the second quarter of 1995.
New insurance written for the second quarter of 1996 reflected an
increase in the usage of the monthly premium product to 90% of new insurance
written from 83% of new insurance written in the second quarter of 1995. New
insurance written for adjustable-rate mortgages ("ARMS") decreased to 23% of
new insurance written in the second quarter of 1996 from 36% of new insurance
written in the same period of 1995. Also, mortgages with loan-to-value
("LTV") ratios in excess of 90% but not more than 95% ("95%") decreased to
41% of new insurance written in the second quarter of 1996 from 44% of new
insurance written in the same period of 1995.
The $8.9 billion of new primary insurance written during the second
quarter of 1996 was partially offset by the cancellation of $6.1 billion of
insurance in force, and resulted in a net increase of $2.8 billion in primary
insurance in force, compared to new primary insurance written of $7.0
billion, the cancellation of $2.9 billion, and a net increase of $4.1 billion
during the second quarter of 1995. Direct primary insurance in force
was $125.0 billion at June 30, 1996 compared to $112.1 billion at June 30,
1995.
Cancellation activity increased in the second quarter of 1996 from the
second quarter of 1995 due to the increased refinancing activity which
resulted in a decrease in the MGIC persistency rate (percentage of insurance
remaining in force from one year prior) to 81.5% at June 30, 1996 from 87.4%
at June 30, 1995.
Net premiums written were $141.6 million during the second quarter of
1996, compared to $118.1 million during the second quarter of 1995, an
increase of $23.5 million or 20%. The increase was primarily a result of the
growth in insurance in force.
Net premiums earned were $150.7 million for the second quarter of 1996,
compared to $122.4 million for the second quarter of 1995, an increase of
$28.3 million, or 23%, primarily reflecting the growth of insurance in force.
Investment income for the second quarter of 1996 was $25.2 million, an
increase of 19% over the $21.2 million in the second quarter of 1995. This
increase was primarily the result of an increase in the amortized cost of
average invested assets to $1,727.7 million for the second quarter of 1996
from $1,419.5 million for the second quarter of 1995, an increase of 22%. The
portfolio's average pre-tax investment yield was 5.8% for the second quarter
of 1996 compared to 6.0% in the same period of 1995. The portfolio's average
after-tax investment yield was 5.1% for the second quarter of 1996 compared
to 5.3% for the second quarter of 1995.
Other revenue, primarily fee-based services for underwriting and
contracts with government agencies for premium reconciliation and claim
administration, was $6.3 million in the second quarter of 1996, compared to
$5.0 million in the same period of 1995. Fees from underwriting services
increased $1.8 million, offset by a decrease in fees from contracts with
government agencies of $0.6 million.
Net losses incurred increased to $56.9 million during the second quarter
of 1996 from $44.0 million during the second quarter of 1995, an increase of
29%. Such increase was primarily a result of higher reserve levels
necessitated by increased notice of default activity on loans insured in late
1994 and the first half of 1995, the continued growth and maturation of the
insurance in force and higher coverages for business written during 1995 and
1996. The increase was partially offset by a redundancy in prior year loss
reserves resulting from actual claim rates and actual claim amounts being
lower than those estimated by the Company when originally establishing
the reserve at December 31, 1995. The Company expects that, in general,
incurred losses will continue to rise as a result of increased delinquency
activity primarily related to the higher risk profile of loans insured in
late 1994 and the first half of 1995, and the continued growth and maturing
of its insurance in force as well as anticipated higher severity resulting
from higher coverages for business written beginning in 1995. At June 30,
1996, 55% of MGIC's insurance in force was written during the preceding ten
quarters, compared to 67% at June 30, 1995. 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. A substantial
portion of the insurance written in 1992 and 1993 represented insurance on
the refinance of mortgage loans originated in earlier years. (See Safe
Harbor Statement at the end of this document.)
Underwriting and other expenses increased 7% to $37.6 million in the
second quarter of 1996 from $35.1 million in the second quarter of 1995.
This increase was primarily due to an increase in expenses associated with
the fee-based services for underwriting and an increase in premium tax.
The consolidated insurance operations loss ratio was 37.7% for the second
quarter of 1996 compared to 36.0% for the second quarter of 1995. The
consolidated insurance operations expense and combined ratios were 22.7% and
60.4%, respectively, for the second quarter of 1996 compared to 25.7% and
61.7% for the second quarter of 1995.
The effective tax rate was 28.9% in the second quarter of 1996, compared
to 28.6% in the second quarter of 1995. During both periods, the effective
tax rate was below the statutory rate of 35%, reflecting the benefits of tax-
preferenced investment income.
Six Months Ended June 30, 1996 Compared With Six Months Ended
June 30, 1995
Net income for the six months ended June 30, 1996 was $121.1 million,
compared to $95.2 million for the same period of 1995, an increase of 27%.
Net income per share for the six months ended June 30, 1996 was $2.04
compared to $1.61 in the same period last year, an increase of 27%.
The amount of new primary insurance written by MGIC during the six
months ended June 30, 1996 was $16.5 billion, compared to $13.1 billion in
the same period of 1995. Refinancing activity accounted for 24% of new
primary insurance written in the first half of 1996, compared to 7% in the
first half of 1995.
New insurance written for 1996 reflected an increase in the usage of the
monthly premium product to 89% of new insurance written from 80% of new
insurance written in the first half of 1995. New insurance written for ARMS
decreased to 20% of new insurance written in the first half of 1996 from 44%
of new insurance written in the same period of 1995. Also, mortgages with
LTV ratios of 95% decreased to 39% of new insurance written in the first six
months of 1996 from 44% of new insurance written in the same period of 1995.
Principally as a result of changes in the coverage requirements by the
Federal National Mortgage Association and the Federal Home Loan Mortgage
Corporation, new insurance written for mortgages with LTV ratios in excess of
80% but not more than 90% and coverage of 25% was 40% of new insurance
written in the first half of 1996 compared to 27% in the first half of 1995.
New insurance written for mortgages with LTV ratios of 95% and coverage of
30% was 36% of new insurance written in the first half of 1996 compared to
28% in the first half of 1995.
The $16.5 billion of new primary insurance written during the first half
of 1996 was partially offset by the cancellation of $11.8 billion of
insurance in force, and resulted in a net increase of $4.7 billion in primary
insurance in force, compared to new primary insurance written of $13.1
billion, the cancellation of $5.4 billion, and a net increase of $7.7 billion
during the first half of 1995. Direct primary insurance in force was
$125.0 billion at June 30, 1996 compared to $112.1 billion at June 30, 1995.
Cancellation activity increased in the first six months of 1996 from the
first half of 1995 due to the increased refinancing activity which resulted
in a decrease in the MGIC persistency rate (percentage of insurance remaining
in force from one year prior) to 81.5% at June 30, 1996 from 87.4% at June
30, 1995.
Net premiums written were $265.1 million during the first half of 1996,
compared to $216.1 million during the first half of 1995, an increase of
$49.0 million or 23%. The increase was primarily a result of the growth in
insurance in force and the increase in coverage requirements discussed above.
Net premiums earned were $295.4 million for the first six months of 1996,
compared to $236.8 million for the first six months of 1995, an increase of
$58.6 million, or 25%, primarily reflecting the growth of insurance in force
and the increase in coverage requirements discussed above.
Investment income for 1996 was $49.5 million, an increase of 19% over the
$41.5 million in the first six months of 1995. This increase was primarily
the result of an increase in the amortized cost of average invested assets to
$1,682.3 million for the first half of 1996 from $1,387.4 million for the
first half of 1995, an increase of 21%. The portfolio's average pre-tax
investment yield was 5.9% for the first six months of 1996 compared to 6.0%
in the first six months of 1995. The portfolio's average after-tax
investment yield was 5.1% for 1996 compared to 5.3% for the first half of
1995.
Other revenue, primarily contracts with government agencies for premium
reconciliation and claim administration, and fee-based services for
underwriting, was $11.7 million in the first half of 1996, compared to $10.5
million in the first half of 1995. Fees from underwriting services increased
$2.6 million, offset by a decrease in fees from contracts with government
agencies of $1.7 million.
Ceding commission for 1996 was $2.1 million, compared to $2.5 million for
the first half of 1995, a decrease of 16%. The decrease was primarily
attributable to reductions in premiums ceded under quota share reinsurance
agreements.
Net losses incurred increased to $113.7 million during the first six
months of 1996 from $87.3 million during the first six months of 1995, an
increase of 30%. Such increase was primarily a result of higher reserve
levels necessitated by increased notice of default activity on loans insured
in late 1994 and the first half of 1995, the continued growth and maturation
of the insurance in force and higher coverages for business written during
1995 and 1996. The increase was partially offset by a redundancy in prior
year loss reserves resulting from actual claim rates and actual claim amounts
being lower than those estimated by the Company when originally
establishing the reserve at December 31, 1995. The Company expects that, in
general, incurred losses will continue to rise as a result of increased
delinquency activity primarily related to the higher risk profile on loans
insured in late 1994 and the first half of 1995, and the continued growth and
maturing of its insurance in force as well as anticipated higher severity
resulting from higher coverages for business written beginning in 1995. At
June 30, 1996, 55% of MGIC's insurance in force was written during the
preceding ten quarters, compared to 67% at June 30, 1995. 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.
A substantial portion of the insurance written in 1992 and 1993 represented
insurance on the refinance of mortgage loans originated in earlier years.
(See Safe Harbor Statement at the end of this document.)
Underwriting and other expenses increased 6% to $73.3 million in the
first half of 1996 from $69.4 million in the first half of 1995. This
increase was primarily due to an increase in expenses associated with the
fee-based services for underwriting and an increase in premium tax.
The consolidated insurance operations loss ratio was 38.5% for the first
half of 1996 compared to 36.9% for the first half of 1995. The consolidated
insurance operations expense and combined ratios were 24.0% and 62.5%,
respectively, for the first half of 1996 compared to 28.2% and 65.1% for the
first half of 1995.
The effective tax rate was 28.8% in the first half of 1996, compared to
28.2% in the first half of 1995. 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 1996 resulted
from a lower percentage of total income before tax generated from tax-
preferenced investments in 1996.
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 for the six months ended June 30, 1996, 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. In January 1997, the Company is
obligated to repay mortgages payable of $35.4 million, which are secured by
the home office and substantially all of the furniture and fixtures of the
Company.
Consolidated total investments were $1,789.7 million at June 30, 1996,
compared to $1,687.2 million at December 31, 1995, an increase of 6%.
Included in the change in investments was a decrease of $56.1 million in
unrealized gains. The investment portfolio includes unrealized gains on
securities marked to market at June 30, 1996 and December 31, 1995 of $28.1
million and $84.2 million, respectively. As of June 30, 1996, the Company had
$81.3 million of short-term investments with maturities of 90 days or less.
In addition, at June 30, 1996, based on amortized cost, the Company's total
investments, which were virtually all 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 15% to $426.5 million at June 30,
1996 from $371.0 million at December 31, 1995, reflecting the higher level of
defaults for the reasons described above. Consistent with industry
practices, the Company does not establish loss reserves for future claims on
insured loans which are not currently in default.
Consolidated unearned premiums decreased $33.7 million from $251.2
million at December 31, 1995 to $217.5 million at June 30, 1996, reflecting
the continued high level of monthly premium policies written, for which there
is no unearned premium. Reinsurance recoverable on unearned premiums
decreased $3.4 million to $12.1 million at June 30, 1996 from $15.5 million
at December 31, 1995, primarily reflecting the reduction in unearned
premiums.
Consolidated shareholder's equity increased to $1,210.0 million at
June 30, 1996, from $1,121.4 million at December 31, 1995, an increase of 8%.
This increase consisted of $121.1 million of net income during the first six
months of 1996 and $8.7 million from the reissuance of treasury stock, offset
by a decrease in net unrealized gains on investments of $36.5 million, net of
tax, and dividends declared of $4.7 million.
MGIC is the principal insurance subsidiary of the Company. MGIC's risk-
to-capital was 18.2:1 at June 30, 1996 compared to 19.1:1 at December 31,
1995. The decrease was due to MGIC's increased policyholders' reserves,
partially offset by the additional risk in force of $1.5 billion resulting
from the $4.2 billion addition to insurance in force, net of reinsurance,
during the first six months of 1996.
The Company's combined insurance risk-to-capital ratio was 18.9:1 at
June 30, 1996, compared to 19.9:1 at December 31, 1995. The decrease was due
to the same reasons as described above.
Safe Harbor Statement
The following is a "Safe Harbor" Statement under the Private Securities
Litigation Reform Act of 1995, which applies as follows to all statements
relating to incurred losses, delinquency activity and claims frequency in
this Form 10-Q that are not historical facts:
Such statements that are not historical facts are forward looking
statements. Actual future incurred losses, increased delinquency
activity and claims frequency may differ materially from those
expected or projected in the forward looking statements. These
forward looking statements involve risks and uncertainties that the
incidence and severity of losses, delinquencies and claims may
increase beyond expectations or projections for various reasons,
including but not limited to, the following: a reduction in the
growth of borrower income, a reduced level of borrower
creditworthiness, and increased unemployment; higher interest rates
and adverse economic conditions; and a reduced level of housing
price appreciation and a reduced ability of homeowners to sell
homes to satisfy their mortgage obligations.
PART II. OTHER INFORMATION
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
(a) The Annual Meeting of Shareholders of the Company was held
on May 2, 1996.
(b) At the Annual Meeting, the following Directors were elected to
Class II of the Board of Directors, for a term expiring at the
annual meeting of shareholders to be held in 1999 or until a
successor is duly elected and qualified:
Mary K. Bush, David S. Engelman, Kenneth M. Jastrow, II,
and William H. Lacy
Directors with continuing terms of office are:
Class I
(term expiring 1998): James A. Abbott
James D. Ericson
Sheldon B. Lubar
Edward J. Zore
Class III
(term expiring 1997): Karl E. Case
Leslie M. Muma
Wayne J. Roper
Peter J. Wallison
(c) Matters voted upon at the Annual Meeting and the number of
shares voted for, or against or withheld, or abstaining from
voting, are as follows:
(1) Election of four Directors for a term expiring in 1999.
FOR WITHHELD
----- --------
Mary K. Bush 53,550,093 115,540
David S. Engelman 53,556,515 109,118
Kenneth M. Jastrow, II 53,549,843 115,790
William H. Lacy 53,556,500 109,133
(2) Ratification of the appointment of Price Waterhouse LLP as
independent public accountants for the Company for 1996.
For: 53,623,315
Against: 22,263
Abstaining from Voting: 20,055
There were no "broker non-votes" applicable to any of these matters
described above.
(d) Not applicable
ITEM 5. OTHER INFORMATION
For a discussion of certain litigation brought by borrowers
challenging the necessity of maintaining mortgage insurance in
certain circumstances, see the last paragraph of Note 2 to the
Consolidated Financial Statements (Unaudited) of the Company
contained in Part I above.
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
June 30, 1996.
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 August 8, 1996.
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
INDEX TO EXHIBITS
(Item 6)
Exhibit
Number Description of Exhibit
- ------- ----------------------
11.1 Statement Re Computation of Net Income
Per Share
27 Financial Data Schedule
EXHIBIT 11.1
MGIC INVESTMENT CORPORATION AND SUBSIDIARIES
STATEMENT RE COMPUTATION OF NET INCOME PER SHARE
Three and Six Month Periods Ended June 30, 1996 and 1995
Three Months Ended Six Months Ended
June 30, June 30,
------------------- -------------------
1996 1995 1996 1995
-------- -------- -------- --------
(In thousands of dollars, except per share data)
PRIMARY NET INCOME PER SHARE
Adjusted shares outstanding:
Average common shares
outstanding 58,904 58,530 58,846 58,477
Net shares to be issued upon
exercise of dilutive stock
options after applying
treasury stock method 562 719 604 711
-------- -------- -------- --------
Adjusted shares outstanding 59,466 59,249 59,450 59,188
======== ======== ======== ========
Net income $ 62,650 $ 49,945 $121,110 $ 95,163
======== ======== ======== ========
Primary net income per share $ 1.05 $ 0.84 $ 2.04 $ 1.61
======== ======== ======== ========
FULLY DILUTED NET INCOME PER SHARE
Adjusted shares outstanding:
Average common shares
outstanding 58,904 58,530 58,846 58,477
Net shares to be issued upon
exercise of dilutive stock
options after applying
treasury stock method 563 743 604 773
-------- -------- -------- --------
Adjusted shares outstanding 59,467 59,273 59,450 59,250
======== ======== ======== ========
Net income $ 62,650 $ 49,945 $121,110 $ 95,163
======== ======== ======== ========
Fully diluted net income
per share $ 1.05 $ 0.84 $ 2.04 $ 1.61
======== ======== ======== ========