What changed in this filing

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Item 1. Financial Statements

2020-11-05 compared with 2020-08-06 · 201 added, 158 removed, 628 unchanged (36% of the section changed)

1 unchanged sentence

INDEX TO FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets as of June 30, 2020 (Unaudited) and December 31, 2019 6

Condensed Consolidated Statements of Operations and Comprehensive Income for the three and six months ended June 30, 2020 and 2019 (Unaudited) 7

Condensed Consolidated Statements of Changes in Shareholders' Equity for the six months ended June 30, 2020 and 2019 (Unaudited) 8

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2020 and 2019 (Unaudited) 10

Condensed Consolidated Balance Sheets as of September 30, 2020 (Unaudited) and December 31, 2019 6

Condensed Consolidated Statements of Operations and Comprehensive Income for the three and nine months ended September 30, 2020 and 2019 (Unaudited) 7

Condensed Consolidated Statements of Changes in Shareholders' Equity for the nine months ended September 30, 2020 and 2019 (Unaudited) 8

Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2020 and 2019 (Unaudited) 10

Notes to Condensed Consolidated Financial Statements (Unaudited) 11

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CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

June 30, 2020 December 31, 2019

September 30, 2020 December 31, 2019

Assets (In Thousands, except for share data)

Fixed maturities, available-for-sale, at fair value (amortized cost of $1,286,803 and $1,113,779 as of June 30, 2020 and December 31, 2019, respectively) $ 1,339,771 $ 1,140,940

Cash and cash equivalents (including restricted cash of $2,068 and $2,662 as of June 30, 2020 and December 31, 2019, respectively) 515,450 41,089

Fixed maturities, available-for-sale, at fair value (amortized cost of $1,624,970 and $1,113,779 as of September 30, 2020 and December 31, 2019, respectively) $ 1,689,815 $ 1,140,940

Cash and cash equivalents (including restricted cash of $5,555 and $2,662 as of September 30, 2020 and December 31, 2019, respectively) 194,199 41,089

Premiums receivable 48,159 46,085

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Common stock - class A shares, $0.01 par value;

84,804,766 and 68,358,074 shares issued and outstanding as of June 30, 2020 and December 31, 2019, respectively (250,000,000 shares authorized) 848 684

84,808,516 and 68,358,074 shares issued and outstanding as of September 30, 2020 and December 31, 2019, respectively (250,000,000 shares authorized) 848 684

Additional paid-in capital 930,906 707,003

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C ONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (UNAUDITED)

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

2 unchanged sentences

Net investment income 8,337 7,882 23,511 22,894

Net realized investment gains (losses) 711 ( 113 ) 639 ( 300 )

Net realized investment (losses) gains ( 4 ) 81 635 ( 219 )

Other revenues 648 1,244 2,771 1,700

19 unchanged sentences

Other comprehensive income, net of tax:

Unrealized gains in accumulated other comprehensive income, net of tax expense of $8,978 and $3,662 for the three months ended June 30, 2020 and 2019, and $5,162 and $7,615 for the six months ended June 30, 2020 and 2019, respectively 33,773 13,779 19,418 28,647

Reclassification adjustment for realized (gains) losses included in net income, net of tax expense (benefit) of $149 and ($24) for the three months ended June 30, 2020 and 2019, and ($258) and ($63) for the six months ended June 30, 2020 and 2019, respectively ( 562 ) 89 969 237

Unrealized gains in accumulated other comprehensive income, net of tax expense of $2,494 and $1,376 for the three months ended September 30, 2020 and 2019, respectively, and $7,655 and $8,991 for the nine months ended September 30, 2020 and 2019, respectively 9,381 5,177 28,799 33,824

Reclassification adjustment for realized losses (gains) included in net income, net of tax (benefit) expense of ($1) and $17 for the three months ended September 30, 2020 and 2019, respectively, and ($258) and ($46) for the nine months ended September 30, 2020 and 2019, respectively 3 ( 64 ) 972 173

Other comprehensive income, net of tax 9,384 5,113 29,771 33,997

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Share-based compensation expense — — 2,722 — — 2,722

Change in unrealized investment gains, net of tax expense of $8,829 — — — 33,211 — 33,211

Change in unrealized investment gains/losses, net of tax expense of $8,829 — — — 33,211 — 33,211

Net income — — — — 26,848 26,848

Balances, June 30, 2020 84,805 $ 848 $ 927,950 $ 37,675 $ 290,564 $ 1,257,037

Common stock:

class A shares issued under stock plans, net of shares withheld for employee taxes 4 * — — — —

Share-based compensation expense — — 2,956 — — 2,956

Change in unrealized investment gains, net of tax expense of $2,494 — — — 9,384 — 9,384

Net income — — — — 38,179 38,179

Balances, September 30, 2020 84,809 $ 848 $ 930,906 $ 47,059 $ 328,743 $ 1,307,556

* During the three months ended March 31, 2020, we issued 6,474 common shares with a par value of $ 0.01 in connection with the exercise of warrants, which is not identifiable in this schedule due to rounding.

During three months ended June 30, 2020, we issued 61,226 common shares, with a par value of $ 0.01 in connection with shares issued under stock plan, which is not identifiable in this schedule due to rounding.

During the three months ended June 30, 2020 and September 30, 2020, we issued 61,226 and 3,750 common shares, respectively, with a par value of $ 0.01 in connection with the exercise of options, and vesting of restricted stock units granted under our stock plans, which are not identifiable in this schedule due to rounding.

NMI HOLDINGS, INC.

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Balances, June 30, 2019 67,768 $ 677 $ 692,163 $ 14,052 $ 105,487 $ 812,379

Common stock:

class A shares issued related to warrants 82 1 2,176 — — 2,177

Common stock:

class A shares issued under stock plans, net of shares withheld for employee taxes 77 1 655 — — 656

Share-based compensation expense — — 3,399 — — 3,399

Change in unrealized investment gains/losses, net of tax expense of $1,359 — — — 5,113 — 5,113

Net income — — — — 49,763 49,763

Balances, September 30, 2019 67,927 $ 679 $ 698,393 $ 19,165 $ 155,250 $ 873,487

* During the three months ended March 31, 2019, we issued 39,195 common shares with a par value of $ 0.01 in connection with the exercise of warrants, which is not identifiable in this schedule due to rounding.

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CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the six months ended June 30,

For the nine months ended September 30,

Cash flows from operating activities (In Thousands)

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We have elected to present accrued interest receivable separately from available for sale securities on our consolidated balance sheet.

Accrued interest receivable was $ 7.9 million as of June 30, 2020 and is included in " Accrued Investment Income.

Accrued interest receivable was $ 9.8 million as of September 30, 2020 and is included in " Accrued Investment Income.

" We have elected not to measure an allowance for credit losses for accrued interest receivable on available for sale securities.

Accrued interest for available for sale securities is written off against interest income when the receivable has aged 90 days past due.

We did not write off any accrued interest receivable during the three or six months ended June 30, 2020.

We did not write off any accrued interest receivable during the three or nine months ended September 30, 2020.

Premiums Receivable

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We recognize an allowance for credit losses for premiums receivable based on credit losses expected to arise over the life of the receivable.

Due to the nature of our insurance policies (a necessary precondition for access to mortgage credit for covered borrowers) and the short duration of the related receivables, we do not typically experience credit losses against our premium receivables and did not establish an allowance for credit loss at June 30, 2020.

Premiums receivable may be written off prior to 120 days in the ordinary course of business for non-credit events including, but not limited to, the modification or refinancing of an underlying insured loan.

We have established a reserve for premium write-offs based on historical experience;

such reserve was deemed to be immaterial at June 30, 2020.

such reserve was deemed to be immaterial at September 30, 2020.

We account for premiums, claims and claim expenses that are ceded to reinsurers on a basis consistent with that which we use to account for the original policies we issue and pursuant to the terms of our reinsurance contracts.

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Under the QSR Transactions, we cede a portion of claims and claim expense reserves to our reinsurers, and account for such ceded reserves as " Reinsurance Recoverables " on the consolidated balance sheets and such ceded claims as reductions to claims expenses on the consolidated statements of operations.

As of June 30, 2020, we had $ 14.3 million of reinsurance recoverables under the QSR Transaction s.

As of September 30, 2020, we had $ 17.2 million of reinsurance recoverables under the QSR Transaction s.

We remain directly liable for all claim payments if we are unable to collect the recoverables due from our reinsurers and, as such, we actively monitor and manage our counterparty credit exposure to our reinsurance providers.

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We actively monitor the counterparty credit profiles of our reinsurers and each is required to partially collateralize its obligations under the terms of our QSR Transactions.

As of June 30, 2020, we did not recognize any allowance for credit loss with respect to our reinsurance recoverables.

As of September 30, 2020, we did not recognize any allowance for credit loss with respect to our reinsurance recoverables.

Variable Interest Entities

NMIC is a party to reinsurance agreements with Oaktown Re Ltd., Oaktown Re II Ltd., Oaktown Re III Ltd.

and Oaktown Re IV Ltd.

(special purpose reinsurance entities collectively referred to as the Oaktown Re Vehicles) effective May 2, 2017, July 25, 2018, July 30, 2019 and July 30, 2020, respectively.

At inception of the respective reinsurance agreements, we determined that each of the Oaktown Re Vehicles were variable interest entities (VIEs), as defined under GAAP Accounting Standards Codification (ASC) 810, because they did not have sufficient equity at risk to finance their respective activities.

We evaluated the VIEs at inception to determine whether NMIC was the primary beneficiary under each deal and, if so, whether we were required to consolidate the assets and liabilities of each VIE.

The primary beneficiary of a VIE is an enterprise that (1) has the power to direct the activities of the VIE, which most significantly impact its economic performance and (2) has significant economic exposure to the VIE, i.e.

, the obligation to absorb losses or receive benefits that could potentially be significant.

The determination of whether an entity is the primary beneficiary of a VIE is complex and requires management judgment regarding determinative factors, including the expected results of the VIE and how those results are absorbed by beneficial interest holders, as well as which party has the power to direct activities that most significantly impact the performance of the VIE.

We concluded that we are not the primary beneficiary of each VIE and as such, we do not consolidate them in our consolidated financial statements.

Recent Accounting Pronouncements - Adopted

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In August 2018, the FASB issued ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts .

This update provides guidance to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity.

This update provides guidance to the existing recognition, measurement, presentation and disclosure requirements for

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

long-duration contracts issued by an insurance entity.

The FASB subsequently issued ASU 2019-09 in November 2019, which amended the effective date for this standard.

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We are currently evaluating the impact the adoption of this ASU will have, if any, on our consolidated financial statements.

In November 2019, the FASB issued ASU 2019-12, Income Taxes (Topic 740) .

In December 2019, the FASB issued ASU 2019-12, Simplifying the Accounting for Income Taxes (Topic 740) .

This update eliminates certain exceptions for recognizing deferred taxes for investments, performing intra-period allocations and calculating income taxes in interim periods.

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The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2020.

We are currently evaluating the impact the adoption of this ASU will have, if any, on our consolidated financial statements.

We will adopt these updates on January 1, 2021 and do not expect them to have material impacts on our consolidated financial statements.

In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848) .

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The ASU includes optional expedients and exceptions for applying GAAP to contracts, hedging relationships and other transactions affected by reference rate reform if certain criteria are met.

The standard is effective

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

immediately through December 31, 2022 for all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

The standard is effective immediately through December 31, 2022 for all entities that have contracts, hedging relationships, and other transactions that reference LIBOR or another reference rate expected to be discontinued because of reference rate reform.

We are currently evaluating the impact the adoption of this ASU would have, if any, to our contract modifications that are affected by the discontinuation of LIBOR.

In August 2020, the FASB issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging— Contracts in Entity's Own Equity (Subtopic 815-40) .

This update simplifies the accounting for convertible instruments and contracts on an entity's own equity, including warrants, eliminating certain triggers for derivative accounting.

The standard will take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2021.

Early adoption is permitted, but no earlier than fiscal years beginning after December 15, 2020.

We are currently evaluating the impact the adoption of this ASU will have, if any, on our consolidated financial statements, including our warrant liability .

We hold all investments on an available-for-sale basis and evaluate each position quarterly for impairment.

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Cost Gross Unrealized Fair

As of June 30, 2020 (In Thousands)

As of September 30, 2020 (In Thousands)

Treasury securities and obligations of U.S.

6 unchanged sentences

Total investments $ 1,624,970 $ 65,601 $ ( 756 ) $ 1,689,815

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Cost Gross Unrealized Fair

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Total investments $ 1,113,779 $ 28,579 $ ( 1,418 ) $ 1,140,940

We did not own any mortgage-backed securities in our asset-backed securities portfolio at June 30, 2020 o r December 31, 2019.

We did not own any mortgage-backed securities in our asset-backed securities portfolio at September 30, 2020 o r December 31, 2019.

We periodically recognize unsettled trades payable or receivable in connection with our investing activity.

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Unsettled trades receivable represent funds due for investments sold at period end.

Included in "Accounts Payable and Accrued Expenses" are $ 68.9 million and $ 5.6 million of unsettled trade payables from the purchase of investment securities at June 30, 2020 and December 31, 2019, respectively.

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of June 30, 2020 and December 31, 2019:

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

June 30, 2020 December 31, 2019

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of September 30, 2020 and December 31, 2019:

September 30, 2020 December 31, 2019

Financial 36 % 38 %

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Total 100 % 100 %

As of June 30, 2020 and December 31, 2019, approximately $ 5.7 million and $ 5.5 million, respectively, of our cash and investments were held in the form of U.S.

As of September 30, 2020 and December 31, 2019, approximately $ 5.7 million and $ 5.5 million, respectively, of our cash and investments were held in the form of U.S.

Treasury securities on deposit with various state insurance departments to satisfy regulatory requirements.

Scheduled Maturities

The amortized cost and fair value of available-for-sale securities as of June 30, 2020 and December 31, 2019, by contractual maturity, are shown below.

The amortized cost and fair value of available-for-sale securities as of September 30, 2020 and December 31, 2019, by contractual maturity, are shown below.

Expected maturities will differ from contractual maturities because issuers may have the right to call or prepay obligations with or without call or prepayment penalties.

Because most asset-backed securities provide for periodic payments throughout their lives, they are listed below in a separate category.

As of June 30, 2020 Amortized

As of September 30, 2020 Amortized

(In Thousands)

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Total investments $ 1,624,970 $ 1,689,815

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As of December 31, 2019 Amortized

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Aging of Unrealized Losses

As of June 30, 2020, the investment portfolio had gross unrealized losses of $ 1.3 million, of which $ 0.1 million had been in an unrealized loss position for a period of 12 months or longer.

As of September 30, 2020, the investment portfolio had gross unrealized losses of $ 0.8 million, of which $ 28 thousand had been in an unrealized loss position for a period of 12 months or longer.

For those securities in an unrealized loss position, the length of time the length of time the securities were in such a position is as follows:

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Less Than 12 Months 12 Months or Greater Total

# of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses # of Securities Fair Value Unrealized Losses

As of June 30, 2020 (Dollars in Thousands)

As of September 30, 2020 (Dollars in Thousands)

Municipal debt securities 9 $ 15,706 $ ( 24 ) — $ — $ — 9 $ 15,706 $ ( 24 )

Corporate debt securities 20 101,088 ( 702 ) 1 33 ( 1 ) 21 101,121 ( 703 )

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Allowance for credit losses

As of June 30, 2020, we did not recognize an allowance for credit loss for any security in the investment portfolio and we did record any provision for credit loss for investment securities during the three or six months ended June 30, 2020.

Based on current facts and circumstances, we believe the unrealized losses as of June 30, 2020 are not indicative of the ultimate collectability of the current amortized cost of the securities.

We believe the gross unrealized losses are primarily attributable to widening credit spreads as a result of uncertainties arising from the COVID-19 pandemic.

During the six months ended June 30, 2019, we recognized $ 0.4 million other-than-temporarily impaired (OTTI) losses in connection with the planned sale of a security that was disposed of in April 2019.

As of September 30, 2020, we did not recognize an allowance for credit loss for any security in the investment portfolio and we did not record any provision for credit loss for investment securities during the three and nine months ended September 30, 2020.

Based on current facts and circumstances, we believe the unrealized losses as of September 30, 2020 are not indicative of the ultimate collectability of the current amortized cost of the securities.

During the nine months ended September 30, 2019, we recognized $ 0.4 million other-than-temporarily impaired (OTTI) losses in connection with the planned sale of a security that was disposed of in April 2019.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net Investment Income

The following table presents the components of net investment income:

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

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The following table presents the components of net realized investment gains (losses):

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

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Gross realized investment losses ( 4 ) — ( 4,491 ) ( 516 )

Net realized investment gains (losses) $ 711 $ ( 113 ) $ 639 $ ( 300 )

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Net realized investment (losses) gains $ ( 4 ) $ 81 $ 635 $ ( 219 )

Fair Value of Financial Instruments

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To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded.

A variety of inputs are utilized by the independent pricing sources including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including data published in market research publications.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

published in market research publications.

Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation.

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Variables in the model include the risk-free rate of return, dividend yield, expected life and expected volatility of our stock price.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following tables present the level within the fair value hierarchy at which our financial instruments were measured:

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(Level 3) Fair Value

As of June 30, 2020 (In Thousands)

As of September 30, 2020 (In Thousands)

Treasury securities and obligations of U.S.

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Total liabilities $ — $ — $ 7,641 $ 7,641

There were no transfers between Level 2 and Level 3 of the fair value hierarchy during the six months ended June 30, 2020, or the year ended December 31, 2019.

There were no transfers between Level 2 and Level 3 of the fair value hierarchy during the nine months ended September 30, 2020, or the year ended December 31, 2019.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following is a roll-forward of Level 3 liabilities measured at fair value:

For the six months ended June 30,

For the nine months ended September 30,

Warrant Liability 2020 2019

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Issuance of common stock on warrant exercise ( 220 ) ( 6,957 )

Balance, June 30 $ 2,698 $ 9,679

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

T he following table outlines the key inputs and assumptions used to calculate the fair value of the warrant liability in the Black-Scholes option-pricing model as of the dates indicated.

As of June 30,

Balance, September 30 $ 3,135 $ 6,364

The following table outlines the key inputs and assumptions used to calculate the fair value of the warrant liability in the Black-Scholes option-pricing model as of the dates indicated.

As of September 30,

Common stock price $ 17.80 $ 26.26

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Dividend yield 0 % 0 %

The changes in fair value of the warrant liability for the six months ended June 30, 2020 and 2019 are primarily attributable to changes in the price of our common stock during the respective periods, with additional impact related to changes in other Black-Scholes model inputs.

The change in fair value of the warrant liability for the six months ended June 30, 2019 also reflects the impact of the exercises of outstanding warrants.

The changes in fair value of the warrant liability for the nine months ended September 30, 2020 and 2019 are primarily attributable to changes in the price of our common stock during the respective periods, with additional impact related to changes in other Black-Scholes model inputs.

The change in fair value of the warrant liability for the nine months ended September 30, 2019 also reflects the impact of the exercises of outstanding warrants.

Financial Instruments not Measured at Fair Value

On June 19, 2020, we issued $ 400 million aggregate principal amount of senior secured notes that mature on June 1, 2025 (the Notes).

At June 30, 2020, the Notes were carried at a cost of $ 392.8 million, net of unamortized debt issuance costs of $ 7.2 million, and had a fair value of $ 418.4 million as assessed under our Level 2 hierarchy.

At September 30, 2020, the Notes were carried at a cost of $ 393.0 million, net of unamortized debt issuance costs of $ 7.0 million, and had a fair value of $ 427.5 million as assessed under our Level 2 hierarchy.

At December 31, 2019, our 2018 Term Loan was carried at a cost of $ 145.8 million, net of unamortized debt issuance costs of $ 2.0 million, and had a fair value of $ 147.8 million.

Senior Secured Notes

At June 30, 2020, we had $ 400 million aggregate principal amount of senior secured notes outstanding.

At September 30, 2020, we had $ 400 million aggregate principal amount of senior secured notes outstanding.

The Notes were issued pursuant to an indenture dated June 19, 2020 (the Indenture) and bear interest at a rate of 7.375 %, payable semi-annually on June 1 and December 1.

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At any time, or from time to time, prior to March 1, 2025, we may elect to redeem the Notes in whole or in part at a price based on 100 % of the aggregate principal amount of any Notes redeemed plus the "Applicable Premium," plus accrued and unpaid interest thereon.

Applicable Premium is defined as the greater of (1) 1.0 % of the principal amount of the Note, or (2) the principal value of the Note plus the present value of all future interest payments.

Applicable Premium is defined as the greater of (1) 1.0 % of the principal amount of the Notes, or (2) the principal value of the Notes plus the present value of all future interest payments.

At any time on or after March 1, 2025, we may elect to redeem the Notes in whole or in part at a price equal to 100 % of the aggregate principal amount of the Notes to be redeemed plus accrued and unpaid interest thereon.

From time to time prior to June 1, 2022, we may also elect to use proceeds raised from one or more equity offerings to redeem up to 40 % of the aggregate principal amount of the Notes at a price equal to 107.375 % of the aggregate principal amount thereof plus accrued and unpaid interest thereon, subject to certain exceptions.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Interest expense for the Notes includes interest and the amortization of capitalized debt issuance costs.

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Such amounts will be amortized over the contractual life of the Notes using the effective interest method.

At June 30, 2020, $ 7.2 million of unamortized debt issuance costs remained.

Interest expense for the three and six months ended June 30, 2020 includes $ 2.6 million of costs related to the extinguishment of the 2018 Term Loan and issuance of the Notes.

At September 30, 2020, $ 7.0 million of unamortized debt issuance costs remained.

Interest expense for the nine months ended September 30, 2020 includes $ 2.6 million of costs related to the extinguishment of the 2018 Term Loan and issuance of the Notes.

We are subject to certain covenants under the Notes (as defined in the Indenture), including, but not limited to, a maximum debt-to-total capitalization ratio of 35 %.

We were in compliance with all Notes covenants as of June 30, 2020.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

We were in compliance with all Notes covenants as of September 30, 2020.

2020 Revolving Credit Facility

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Borrowings under the 2020 Revolving Credit Facility may be used for general corporate purposes, including to support the growth of our new business production and operations, and accrue interest at a variable rate equal to, at our discretion, (i) a base rate (as defined in our existing credit agreement (the Credit Agreement), subject to a floor of 1.00 % per annum) plus a margin of 0.375 % to 1.875 % per annum or (ii) the Eurodollar Rate (subject to a floor of — % per annum) plus a margin of 1.375 % to 2.875 % per annum, based on the applicable corporate credit rating at the time.

As of June 30, 2020, no borrowings were drawn under the 2020 Revolving Credit Facility.

As of September 30, 2020, no borrowings were drawn under the 2020 Revolving Credit Facility.

Under the 2020 Revolving Credit Facility, we are required to pay a quarterly commitment fee on the average daily undrawn amount of 0.175 % to 0.525 %, based on the applicable corporate credit rating at the time.

As of June 30, 2020, the applicable commitment fee was 0.35 %.

For the three and six months ended June 30, 2020, we recorded $ 0.1 million and $ 0.2 million of commitment fees in interest expense, respectively.

As of September 30, 2020, the applicable commitment fee was 0.35 %.

For the three and nine months ended September 30, 2020, we recorded $ 0.1 million and $ 0.3 million of commitment fees in interest expense, respectively.

We incurred debt issuance costs of $ 0.8 million in connection with the 2020 Revolving Credit Facility and had $ 0.6 million of unamortized debt issuance costs associated with the 2018 Revolving Credit Facility remaining at the time of its amendment and replacement.

Combined unamortized debt issuance will be amortized through interest expense on a straight-line basis over the contractual life of the 2020 Revolving Credit Facility.

At June 30, 2020, remaining unamortized deferred debt issuance costs were $ 1.2 million.

At September 30, 2020, remaining unamortized deferred debt issuance costs were $ 1.1 million.

We are subject to certain covenants under the 2020 Revolving Credit Facility, including, but not limited to, the following:

a maximum debt-to-total capitalization ratio of 35 %, a minimum liquidity requirement, compliance with the PMIERs financial requirements (subject to any GSE approved waivers), and minimum consolidated net worth and statutory capital requirements (respectively, as defined therein).

We were in compliance with all covenants at June 30, 2020.

We were in compliance with all covenants at September 30, 2020.

We enter into third-party reinsurance transactions to actively manage our risk, ensure compliance with PMIERs, state regulatory and other applicable capital requirements (respectively, as defined therein), and support the growth of our business.

The Wisconsin Office of the Commissioner of Insurance (Wisconsin OCI) has approved and the GSEs have indicated their non-objection to all such transactions (subject to certain conditions and ongoing review, including levels of approved capital credit).

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The effect of our reinsurance agreements on premiums written and earned is as follows:

For the three months ended For the six months ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

For the three months ended For the nine months ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

(In Thousands)

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Excess-of-loss reinsurance

NMIC entered into excess-of-loss reinsurance agreements with Oaktown Re Ltd., Oaktown Re II Ltd.

and Oaktown Re III Ltd.

(special purpose reinsurance entities collectively referred to as the Oaktown Re Vehicles) effective May 2, 2017, July 25, 2018 and July 30, 2019, respectively.

NMIC entered into excess-of-loss reinsurance agreements with the Oaktown Re Vehicles.

Each agreement provides NMIC with aggregate excess-of-loss reinsurance coverage on a defined portfolio of mortgage insurance policies written during a discrete period.

Under each agreement, NMIC retains a first

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

layer of aggregate loss exposure on covered policies and the respective Oaktown Re Vehicle then provides second layer loss protection up to a defined reinsurance coverage amount.

Under each agreement, NMIC retains a first layer of aggregate loss exposure on covered policies and the respective Oaktown Re Vehicle then provides second layer loss protection up to a defined reinsurance coverage amount.

NMIC then retains losses in excess of the respective reinsurance coverage amounts.

NMIC makes risk premium payments to the Oaktown Re Vehicles for the applicable outstanding reinsurance coverage amount and pays an additional amount for anticipated operating expenses (capped at $ 300 thousand per year to Oaktown Re Ltd.

and $ 250 thousand per year to Oaktown Re II, Ltd.

and Oaktown Re III, Ltd.).

NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $ 3.3 million and $ 7.1 million during the three and six months ended June 30, 2020 and $ 2.9 million and $ 5.9 million during the three and six months ended June 30, 2019, respectively.

and $ 250 thousand per year to Oaktown Re II Ltd., Oaktown Re III Ltd.

and Oaktown IV Ltd.).

NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $ 6.3 million and $ 13.4 million during the three and nine months ended September 30, 2020 and $ 4.4 million and $ 10.3 million during the three and nine months ended September 30, 2019, respectively.

NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure under each excess-of-loss agreement.

NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the three and six months ended June 30, 2020 and 2019, as the aggregate first layer risk retention was not exhausted for each applicable agreement during such periods.

NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the three and nine months ended September 30, 2020 and 2019, as the aggregate first layer risk retention was not exhausted for each applicable agreement during such periods.

Under the terms of each excess-of-loss reinsurance agreement, the Oaktown Re Vehicles are required to fully collateralize their outstanding reinsurance coverage amount to NMIC with funds deposited into segregated reinsurance trusts.

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Such insurance-linked notes mature ten years from the inception date of each reinsurance agreement.

We refer to NMIC's reinsurance agreements with and the insurance-linked note issuances by Oaktown Re Ltd., Oaktown Re II, Ltd.

and Oaktown Re III, Ltd.

individually as the 2017 ILN Transaction, 2018 ILN Transaction and 2019 ILN Transaction, and collectively as the ILN Transactions.

We refer to NMIC's reinsurance agreements with and the insurance-linked note issuances by Oaktown Re Ltd., Oaktown Re II Ltd., Oaktown Re III Ltd.

and Oaktown Re IV Ltd., individually as the 2017 ILN Transaction, 2018 ILN Transaction, 2019 ILN Transaction, and 2020-1 ILN Transaction, and collectively as the ILN Transactions.

The respective reinsurance coverage amounts provided by the Oaktown Re Vehicles decrease from the inception of each agreement over a ten -year period as the underlying insured mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled.

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The amortization of reinsurance coverage, distribution of collateral assets and amortization of insurance-linked notes will remain suspended for the duration of the Lock-Out Event for each ILN Transaction, and during such period assets will be preserved in the applicable reinsurance trust account to collateralize the excess-of-loss reinsurance coverage provided to NMIC.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents the inception date, covered production p eriod, initial and current reinsurance coverage amount, and initial and current first layer retained aggregate loss under each of the ILN Transactions.

Current amounts are presented as of June 30, 2020.

Current amounts are presented as of September 30, 2020.

( $ values in thousands)

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2019 ILN Transaction July 30, 2019 6/1/2018 - 6/30/2019 326,905 231,877 123,424 123,072

2020-1 ILN Transaction July 30, 2020 7/1/2019 - 3/31/2020 322,076 322,076 169,514 169,514

(1) NMIC applies claims paid on covered policies against its first layer aggregate retained loss exposure and cedes reserves for incurred claims and claims expenses to each applicable ILN Transaction and recognizes a reinsurance recoverable if such incurred claims and claims expenses exceed its current first layer retained loss.

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In addition, there are certain events that trigger mandatory termination of an agreement, including NMIC's failure to pay premiums or consent to reductions in a trust account to make principal payments to noteholders, among others.

Under the terms of the 2018, 2019 and 2020-1 ILN Transactions, we are required to maintain a certain level of restricted funds in premium deposit accounts with Bank of New York Mellon until the respective notes have been redeemed in full.

"Cash and cash equivalents" on our condensed consolidated balance sheet includes restricted amounts of $ 5.6 million as of September 30, 2020.

We are not required to deposit additional funds into the premium deposit accounts in the future and the restricted balances required under these transactions.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Under the terms of the 2018 ILN Transaction and the 2019 ILN Transaction, we are required to maintain a certain level of restricted funds in premium deposit accounts with Bank of New York Mellon until the respective notes have been redeemed in full.

"Cash and cash equivalents" on our condensed consolidated balance sheet includes restricted amounts of $ 2.1 million as of June 30, 2020.

We are not required to deposit additional funds into the premium deposit accounts in the future and the restricted balances required under these transactions.

Quota share reinsurance

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NMIC has the option, based on certain conditions and subject to a termination fee, to terminate the agreement as of December 31, 2022, or at the end of any calendar quarter thereafter, which would result in NMIC re-assuming the related risk.

Under the terms of the 2020 QSR Transaction, NMIC cedes premiums earned related to eligible policies written from April 1, 2020 to December 31, 2020 (Eligible Policies).

At the time the 2020 QSR Transaction agreement was executed, NMIC ceded premiums earned related to 10.5 % of the risk on the Eligible Policies, and subsequent to the execution of the agreement, we engaged additional reinsurance counterparties and increased the cession under the 2020 QSR Transaction to 21.0 % of the risk on the Eligible Policies, subject in all respects to the terms of the agreement.

Financial results for the three and six months ended June 30, 2020 , reflect the initial 10.5 % cession rate under the 2020 QSR Transaction.

Under the terms of the 2020 QSR Transaction, NMIC cedes premiums earned related to 21 % of the risk on eligible policies written from April 1, 2020 to December 31, 2020.

The 2020 QSR Transaction is scheduled to terminate on December 31, 2030.

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The termination has no effect on the cession of pool risk under the 2016 QSR Transaction.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

T he following table shows amounts related to the QSR Transactions:

For the three months ended For the six months ended

June 30, 2020 June 30, 2019 June 30, 2020 June 30, 2019

The following table shows amounts related to the QSR Transactions:

For the three months ended For the nine months ended

September 30, 2020 September 30, 2019 September 30, 2020 September 30, 2019

(In Thousands)

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Profit commission 11,034 13,254 28,718 37,199

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Ceded premiums written under the 2016 QSR Transaction are recorded on the balance sheet as prepaid reinsurance premiums and amortized to ceded premiums earned in a manner consistent with the recognition of revenue on direct premiums.

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NMIC's reinsurance recoverable balance is further supported by trust accounts established and maintained by each reinsurer in accordance with the PMIERs funding requirements for risk ceded to non-affiliates.

The reinsurance recoverable on loss reserves related to the 2016 QSR Transaction was $ 4.9 million as of June 30, 2020.

The reinsurance recoverable on loss reserves related to the 2016 QSR Transaction was $ 4.8 million as of September 30, 2020.

In accordance with the terms of the 2018 and 2020 QSR Transactions, cash payments for ceded premiums earned are settled on a quarterly basis, offset by amounts due to NMIC for ceding and profit commissions.

Any loss recoveries and any potential profit commission to NMIC are also settled quarterly.

Any loss recoveries and any potential profit commission to NMIC are also recognized quarterly.

NMIC's reinsurance recoverable balance is supported by trust accounts established and maintained by each reinsurer in accordance with the PMIERs funding requirements for risk ceded to non-affiliates.

The reinsurance recoverable on loss reserves related to the 2018 QSR Transaction was $ 9.4 million as of June 30, 2020.

The reinsurance recoverable on loss reserves related to the 2020 QSR Transaction were immaterial as of June 30, 2020.

The reinsurance recoverable on loss reserves related to the 2018 QSR Transaction was $ 12.2 million as of September 30, 2020.

The reinsurance recoverable on loss reserves related to the 2020 QSR Transaction was $ 0.2 million as of September 30, 2020.

Reserves for Insurance Claims and Claim Expenses

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We also establish reserves for claim expenses, which represent the estimated cost of the claim administration process, including legal and other fees, as well as other general expenses of administering the claim settlement process.

As of June 30, 2020, we had 10,816 primary loans in default and held gross reserves for insurance claims and claim expenses of $ 69.9 million.

During the six months ended June 30, 2020, we paid 83 claims totaling $ 4.1 million, including 78 claims covered under the QSR Transactions representing $ 0.8 million of ceded claims and claim expenses.

As of September 30, 2020, we had 13,765 primary loans in default and held gross reserves for insurance claims and claim expenses of $ 87.2 million.

During the nine months ended September 30, 2020, we paid 123 claims totaling $ 5.6 million, including 117 claims covered under the QSR Transactions representing $ 1.2 million of ceded claims and claim expenses.

In 2013, we entered into a pool insurance transaction with Fannie Mae.

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We only establish reserves for pool risk if we expect claims to exceed this deductible.

At June 30, 2020, 231 loans in the pool were in default.

At September 30, 2020, 277 loans in the pool were in default.

These 277 loans represented approximately $ 23.2 million of RIF.

Due to the size of the remaining deductible, the low level of defaults reported to us on loans in the pool through June 30, 2020 and the expected severity (all loans in the pool have loan-to-value (LTV) ratios under 80 %), we did not establish any case or IBNR reserves for pool risk at June 30, 2020.

In connection with the settlement of pool claims, we applied $ 0.9 million to the pool deductible through June 30, 2020.

At June 30, 2020, the remaining pool deductible was $ 9.5 million.

Due to the size of the remaining deductible, our expectation that a limited number of loans in default will progress to a claim and the expected severity on such claim submissions (all loans in the pool have loan-to-value (LTV) ratios under 80 %), we did not establish any case or IBNR reserves for pool risk at September 30, 2020.

In connection with the settlement of pool claims, we applied $ 0.9 million to the pool deductible through September 30, 2020.

At September 30, 2020, the remaining pool deductible was $ 9.4 million.

We have not paid any pool claims to date.

100 % of our pool RIF is reinsured under the 2016 QSR Transaction.

We had 10,816 loans in default in our primary insured portfolio as of June 30, 2020, which represented a 2.90 % default

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

rate against 372,934 to tal policies in-force.

We had 1,028 loans in default in our primary insured portfolio as of June 30, 2019, which represented a 0.32 % default rate against 324,876 total policies in-force.

We had 13,765 loans in default in our primary insured portfolio as of September 30, 2020, which represented a 3.60 % default rate against 381,899 to tal policies in-force.

We had 1,230 loans in default in our primary insured portfolio as of September 30, 2019, which represented a 0.35 % default rate against 350,395 total policies in-force.

The increase in our default population is primarily due to challenges borrowers are facing related to the COVID-19 outbreak and their decision to access the forbearance program for federally backed loans codified under the Coronavirus Aid, Relief, and Economic Security (CARES) Act or similar programs made available by private lenders.

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Our future claims exposure is a function of the number of defaulted loans that progress to claim payment (which we refer to as frequency) and the amount to be paid to settle such claims (which we refer to as severity).

Our estimates of claims frequency and severity are not formulaic, rather they are broadly synthesized based on historical observed experience for similarly situated loans and assumptions about future macroeconomic factors.

Our estimates of claims frequency and severity are not formulaic, rather they are broadly synthesized based on historical observed experience for similarly situated loans and

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

assumptions about future macroeconomic factors.

We generally observe that forbearance programs are an effective tool to bridge dislocated borrowers from a time of acute stress to a future date when they can resume timely payment of their mortgage obligations.

The effectiveness of forbearance programs is enhanced by the availability of various repayment and loan modification options which allow borrowers to amortize or, in certain instances, outright defer payments otherwise due during the forbearance period over an extended length of time.

In response to the COVID-19 outbreak, the FHFA and GSEs have introduced new repayment and loan modification options to further assist borrowers with their transition out of forbearance programs and default status.

In response to the COVID-19 outbreak, the Federal Housing Financing Agency (FHFA) and GSEs have introduced new repayment and loan modification options to further assist borrowers with their transition out of forbearance programs and default status.

Our reserve setting process considers the beneficial impact of forbearance, foreclosure moratorium and other assistance programs available to defaulted borrowers.

At June 30, 2020, we established lower reserves for defaults that we consider to be connected to the COVID-19 outbreak given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs.

While we established lower reserves per defaulted loan at June 30, 2020, our total reserve position and claims and claims expenses increased substantially as of and during the period ended June 30, 2020 due to the significant increase in the size of our default population.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

At September 30, 2020, we established lower reserves for defaults that we consider to be connected to the COVID-19 outbreak given our expectation that forbearance, repayment and modification, and other assistance programs will aid affected borrowers and drive higher cure rates on such defaults than we would otherwise expect to experience on similarly situated loans that did not benefit from broad-based assistance programs.

While we established lower reserves per defaulted loan at September 30, 2020, our total reserve position and claims and claim expenses increased as of and during the period ended September 30, 2020 due to the growth in the size of our default population.

The following table provides a reconciliation of the beginning and ending gross reserve balances for primary insurance claims and claim expenses:

For the six months ended June 30,

For the nine months ended September 30,

(In Thousands)

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Current year (2)

61,198 10,948

Prior years (3)

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The amount of claims incurred relating to current year defaults represents the estimated amount of claims and claim expenses to ultimately be paid on such loans.

We recognized $ 2.5 million and $ 1.7 million of favorable prior year development during the six months ended June 30, 2020 and 2019, respectively, primarily due to the curing of previously reported defaults.

We may increase or decrease our claim estimates and reserves as we learn additional information about individual defaulted loans, and continue to observe and analyze loss development trends in our portfolio.

Gross reserves of $ 16.5 million related to prior year defaults remained as of June 30, 2020.

We recognized $ 5.5 million and $ 2.7 million of favorable prior year development during the nine months ended September 30, 2020 and 2019, respectively, primarily due to the curing of previously reported defaults.

We may increase or decrease our claim estimates and reserves as we learn additional information about individual defaulted loans, and continue to observe and analyze

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

loss development trends in our portfolio.

Gross reserves of $ 11.4 million related to prior year defaults remained as of September 30, 2020.

Earnings per Share (EPS)

3 unchanged sentences

The following table reconciles the net income and the weighted average shares of common stock outstanding used in the computations of basic and diluted EPS of common stock.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

14 unchanged sentences

The warrants were issued with an aggregate fair value of $ 5.1 million.

During the three months ended June 30, 2020, no warrants were exercised.

During the six months ended June 30, 2020, nine thousand warrants were exercised resulting in the issuance of six thousand shares of common stock.

During the three months ended September 30, 2020, no warrants were exercised.

During the nine months ended September 30, 2020, nine thousand warrants were exercised resulting in the issuance of six thousand shares of common stock.

Upon exercise, we reclassified approximately $ 0.2 million of warrant fair value from warrant liability to additional paid-in capital.

During the three months ended June 30, 2019, 193 thousand warrants were exercised resulting in the issuance of 129 thousand shares of common stock.

Upon exercise, we reclassified approximately $ 3.9 million of warrant fair value from warrant liability to additional paid-in capital, of which $ 2.0 million related to changes in fair value during the three months ended June 30, 2019.

During the six months ended June 30, 2019, 260 thousand warrants were exercised resulting in the issuance of 168 thousand shares of common stock.

Upon exercise, we reclassified approximately $ 4.8 million of warrant fair value from warrant liability to additional paid-in capital, of which $ 2.3 million related to changes in fair value during the six months ended June 30, 2019.

During the three months ended September 30, 2019, 130 thousand warrants were exercised resulting in the issuance of 82 thousand shares of common stock.

Upon exercise, we reclassified approximately $ 2.2 million of warrant fair value from warrant liability to additional paid-in capital, of which $ 0.9 million related to changes in fair value during the three months ended September 30, 2019.

During the nine months ended September 30, 2019, 390 thousand warrants were exercised resulting in the issuance of 249 thousand shares of common stock.

Upon exercise, we reclassified approximately $ 7.0 million of warrant fair value from warrant liability to additional paid-in capital, of which $ 3.2 million related to changes in fair value during the nine months ended September 30, 2019.

We are a U.S.

3 unchanged sentences

federal and various state income tax returns on behalf of itself and its subsidiaries.

Our effective tax rate on our pre-tax income was 23.2 % and 20.5 % for the three and six months ended June 30, 2020, respectively, compared to 23.3 % and 19.9 % for the three and six months ended June 30, 2019, respectively.

Our provision for income taxes for interim reporting periods is established based on our estimated annual effective tax rate for a given year.

Our effective tax rate on our pre-tax income was 22.6 % and 21.2 % for the three and nine months ended September 30, 2020, respectively, compared to 22.2 % and 20.9 % for the three and nine months ended September 30, 2019, respectively.

Our provision for income taxes for interim

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

reporting periods is established based on our estimated annual effective tax rate for a given year.

Our effective tax rate may fluctuate between interim periods due to the impact of discrete items not included in our estimated annual effective tax rate, including the tax effects associated with the vesting of RSUs and exercise of options, and the change in fair value of our warrant liability.

1 unchanged sentence

As a mortgage guaranty insurance company, we are eligible to claim a tax deduction for our statutory contingency reserve balance, subject to certain limitations outlined under IRC Section 832(e), and only to the extent we acquire tax and loss bonds in an amount equal to the tax benefit derived from the claimed deduction, which is our intent.

As a result, our interim provision for income taxes for the three and six months ended June 30, 2020 represents a change in our net deferred tax liability.

As of June 30, 2020, we held $ 7.6 million of tax and loss bonds in "Other assets" in our condensed consolidated balance sheet.

As of June 30, 2020, we had 84.8 million outstanding shares of common stock.

As a result, our interim provision for income taxes for the three and nine months ended September 30, 2020 represents a change in our net deferred tax liability.

As of September 30, 2020, we held $ 7.6 million of tax and loss bonds in "Other assets" in our condensed consolidated balance sheet.

As of September 30, 2020, we had 84.8 million outstanding shares of common stock.

Holders of our common stock have no preemptive or conversion rights or other subscription rights, and there are no redemption or sinking fund provisions applicable to the common stock.

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Our insurance subsidiaries, NMIC and Re One, file financial statements in conformity with statutory accounting principles (SAP) prescribed or permitted by the Wisconsin OCI, NMIC's principal regulator.

Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners.

Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners (NAIC).

The Wisconsin OCI recognizes only statutory accounting practices prescribed or permitted by the state of Wisconsin for determining and reporting the financial condition and results of operations of an insurance company and for determining its solvency under Wisconsin insurance laws.

NMIC and Re One's combined statutory net income (loss) was as follows:

For the three months ended June 30, For the six months ended June 30,

For the three months ended September 30, For the nine months ended September 30,

2020 2019 2020 2019

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Statutory net (loss) gain $ ( 5,600 ) $ 8,055 $ ( 22,614 ) $ 13,594

NMIC and Re One's combined statutory surplus, contingency reserve and risk-to-capital (RTC) ratio were as follows:

June 30, 2020 December 31, 2019

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The Wisconsin OCI has imposed a prescribed accounting practice for the treatment of statutory contingency reserves that differs from the treatment promulgated by the NAIC.

Under Wisconsin OCI's prescribed practice mortgage guaranty insurers are required to reflect changes in their contingency reserves through statutory income.

Such treatment contrasts with the NAIC treatment, which records changes to contingency reserves directly to unassigned funds.

As a Wisconsin-domiciled insurer, NMIC's statutory net income reflects an expense associated with the change in its contingency reserve.

While such treatment impacts NMIC's statutory net income, it does not have an effect on the company's statutory capital position.

NMIC and Re One's combined statutory surplus, contingency reserve, statutory capital and risk-to-capital (RTC) ratio were as follows:

September 30, 2020 December 31, 2019

(In Thousands)

1 unchanged sentence

Contingency reserve 707,769 531,825

Statutory capital (1)

$ 1,591,349 $ 981,427

RTC ratio 12.5 :1

(1) Represents the total of the statutory surplus and contingency reserve.

In June 2020, NMIH contributed approximately $ 445 million of capital to NMIC following completion of its respective Notes and common stock offerings.

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Subsequent Event

On July 30, 2020, NMIC entered into a reinsurance agreement with Oaktown Re IV Ltd.

(Oaktown Re IV), a Bermuda domiciled special purpose reinsurer, that provides for up to $ 322.1 million of aggregate excess-of-loss reinsurance coverage at inception for new delinquencies on an existing portfolio of mortgage insurance policies written between July 1, 2019 and March

For the reinsurance coverage period, NMIC will retain the first layer of $ 169.5 million of aggregate losses and Oaktown Re IV will then provide second layer coverage up to the outstanding reinsurance coverage amount.

Excess-of-loss reinsurance

On October 29, 2020, NMIC entered into a reinsurance agreement with Oaktown Re V Ltd.

(Oaktown Re V), a Bermuda domiciled special purpose reinsurer, that provides for up to $ 242.4 million of aggregate excess-of-loss reinsurance coverage at inception for new delinquencies on an existing portfolio of mortgage insurance policies primarily written between April 1, 2020 and September 30, 2020.

For the reinsurance coverage period, NMIC will retain the first layer of $ 121.2 million of aggregate losses and Oaktown Re V will then provide second layer coverage up to the outstanding reinsurance coverage amount.

NMIC will then retain losses in excess of the outstanding reinsurance coverage amount.

Oaktown Re IV financed the coverage by issuing mortgage insurance-linked notes in an aggregate principal amount of $ 322.1 million to unaffiliated investors.

The notes issued by Oaktown Re IV mature on July 25, 2030;

all proceeds raised were deposited into a reinsurance trust to collateralize and fund the obligations of Oaktown Re IV to NMIC under the reinsurance agreement.

Oaktown Re V financed the coverage by issuing mortgage insurance-linked notes in an aggregate principal amount of $ 242.4 million to unaffiliated investors.

The notes issued by Oaktown Re V mature on October 25, 2030;

all proceeds raised were deposited into a reinsurance trust to collateralize and fund the obligations of Oaktown Re V to NMIC under the reinsurance agreement.

Funds in the reinsurance trust account are required to be invested in high credit quality money market funds at all times.

We refer to NMIC's reinsurance agreement with and the insurance-linked notes issued by Oaktown Re IV as the 2020 ILN Transaction.

Under the terms of the 2020 ILN Transaction, NMIC makes risk premium payments for the applicable outstanding reinsurance coverage amount and pays Oaktown Re IV for anticipated operating expenses (capped at $ 250,000 per year).

We refer to NMIC's reinsurance agreement with and the insurance-linked notes issued by Oaktown Re V as the 2020-2 ILN Transaction.

Under the terms of the 2020-2 ILN Transaction, NMIC makes risk premium payments for the applicable outstanding reinsurance coverage amount and pays Oaktown Re V for anticipated operating expenses (capped at $ 250,000 per year).

2020 Revolving Credit Facility

On October 30, 2020, we entered into a Joinder Agreement, among NMIH, NMIS, JPMorgan Chase Bank, N.A., as administrative Agent and Citibank, N.A., as lender, (the "Joinder") to the Company's existing Credit Agreement, increasing the

aggregate principal amount of commitments under the 2020 Revolving Credit Facility from $ 100 million to $ 110 million.

All other terms remained unchanged.

As of the date hereof, no amounts are outstanding under the 2020 Revolving Credit Facility.

Compared sentence by sentence after normalising whitespace, quotation marks, case and digits, so re-formatting and restated figures do not read as changed language. Wording changes appear as one removal and one addition. The current filing and the prior one are authoritative.

What changed 10-Q

Item 1. Financial Statements