What changed in this filing

/stocks — the workspaceLOADING

Item 2. Management’s Discussion and Analysis

2021-11-03 compared with 2021-08-04 · 211 added, 185 removed, 758 unchanged (34% of the section changed)

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Since formation, we have sought to establish customer relationships with a broad group of mortgage lenders and build a diversified, high-quality insured portfolio.

As of June 30, 2021, we had master policies with 1,656 customers, including national and regional mortgage banks, money center banks, credit unions, community banks, builder-owned mortgage lenders, internet-sourced lenders and other non-bank lenders.

As of June 30, 2021, we had $138.1 billion of total insurance-in-force (IIF), including primary IIF of $136.6 billion, and $34.5 billion of gross RIF, including primary RIF of $34.4 billion.

As of September 30, 2021, we had master policies with 1,699 customers, including national and regional mortgage banks, money center banks, credit unions, community banks, builder-owned mortgage lenders, internet-sourced lenders and other non-bank lenders.

As of September 30, 2021, we had $143.6 billion of primary insurance-in-force (IIF) and $36.3 billion of primary RIF.

We believe that our success in acquiring a large and diverse group of lender customers and growing a portfolio of high-quality IIF traces to our founding principles, whereby we aim to help qualified individuals achieve their homeownership goals, ensure that we remain a strong and credible counter-party, deliver a unique customer service experience, establish a differentiated risk management approach that emphasizes the individual underwriting review or validation of the vast majority of the loans we insure, utilizing our proprietary Rate GPS ® pricing platform to dynamically evaluate risk and price our policies, and foster a culture of collaboration and excellence that helps us attract and retain experienced industry leaders.

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Our common stock trades on the NASDAQ under the symbol "NMIH." Our headquarters is located in Emeryville, California.

As of June 30, 2021, we had 251 employees.

As of September 30, 2021, we had 241 employees.

Our corporate website is located at www.nationalmi.com .

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We pursued a broad series of capital and reinsurance transactions to bolster our balance sheet and expand our ability to serve our customers and their borrowers, and we updated our underwriting guidelines and policy pricing in consideration of the increased level of macroeconomic volatility.

housing market demonstrated notable resiliency in the face of COVID stress, with significant purchase demand, record levels of mortgage origination activity and nationwide house price appreciation emerging shortly after the onset of the pandemic.

More recently, the broad resumption of personal and business activity nationwide has prompted a sharp economic rebound and provided hope for a sustainable economic recovery.

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and poses significant risk globally.

The path and pace of global economic recovery will depend, in large part, on the course of the virus (including the newly emergent Delta variant), which itself remains unknown and subject to risk.

The path and pace of global economic recovery will depend, in large part, on the course of the virus, which itself remains unknown and subject to risk.

Given this uncertainty, we are not able to fully assess or estimate the ultimate impact COVID-19 will have on the mortgage insurance market, our business performance or our financial position including our new business production, default and claims experience, and investment portfolio results at this time.

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We see a causal link between the housing market and the 2008 Financial Crisis that we do not see in the COVID-19 outbreak, and we believe this will further contribute to housing market stability in the current period.

Purchase mortgage origination volume has increased significantly as factors related to the COVID-19 crisis have spurred significant incremental demand for homeownership.

Refinancing origination volume has also grown dramatically as historically low mortgage rates have created refinancing opportunities for a large number of existing borrowers.

Purchase mortgage origination volume increased significantly as factors related to the COVID-19 crisis have spurred significant incremental demand for homeownership.

Refinancing origination volume also grew dramatically as historically low mortgage rates created refinancing opportunities for a large number of existing borrowers.

Growth in total mortgage origination volume increases the addressable market for the U.S.

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Potential Impact on NMI's Business Performance and Financial Position

We had 251 e mployees at June 30, 2021, including 86 who typically work at our corporate headquarters in Emeryville, CA and 165 who typically work from home in locations across the country.

We had 241 e mployees at September 30, 2021, including 81 who typically work at our corporate headquarters in Emeryville, CA and 160 who typically work from home in locations across the country.

In response to the COVID-19 outbreak, we activated our business continuity program and instituted additional work-from-home practices for our Emeryville-based staff.

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mortgage insurance market, as well as the continued expansion of our customer franchise.

We wrote $22.8 billion of NIW during the three months ended June 30, 2021, up 73% compared to the three months ended June 30, 2020.

While we currently expect our new business production will remain elevated, the emergence of the Delta variant and potential onset of a new viral wave could prompt a reintroduction of broad-based shelter in place directives, increased unemployment or other potentially negative economic and societal outcomes that could cause a moderation or decline in our volume going forward.

We wrote $67.2 billion of NIW during the nine months ended September 30, 2021, up 57% compared to the nine months ended September 30, 2020, which itself was up 29% compared to the nine months ended September 30, 2019.

While we currently expect our new business production will remain elevated, the potential onset of a new viral wave could prompt a reintroduction of broad-based shelter in place directives, increased unemployment or other potentially negative economic and societal outcomes that could cause a moderation or decline in our volume going forward.

Further, increasing interest rates and rising house prices, which each trace (in part) to the pandemic, may cause certain prospective homebuyers to defer their purchases and impact mortgage origination activity, total private mortgage insurance industry production and our NIW volume in future periods.

We have broadly defined underwriting standards and loan-level eligibility criteria that are designed to limit our exposure to higher risk loans, and have used Rate GPS to actively shape the mix of our new business production and insured portfolio by, among other risk factors, borrower FICO score, debt-to-income (DTI) ratio and LTV ratio.

In the weeks following the outbreak of COVID-19, we adopted changes to our underwriting guidelines, including changes to our loan documentation requirements, asset reserve requirements, employment verification process and income continuance determinations, that further strengthened the credit risk profile of our NIW volume and IIF.

At June 30, 2021, the weighted average FICO score of our RIF was 754 and we had a 3% mix of below 680 FICO score risk.

Similarly, at June 30, 2021, the weighted average LTV ratio (at origination) of our insured portfolio was 92.4% and we had a 10% mix of 97% LTV risk.

At September 30, 2021, the weighted average FICO score of our RIF was 754 and we had a 3% mix of below 680 FICO score risk.

Similarly, at September 30, 2021, the weighted average LTV ratio (at origination) of our insured portfolio was 92.4% and we had a 11% mix of 97% LTV risk.

Delinquency Trends and Claims Expense

At June 30, 2021 we had 8,764 defaulted loans in our primary insured portfolio, which represented a 1.86% default rate against our 471,794 total policies in-force, and identified 11,889 loans that were enrolled in a forbearance program, including 7,822 of those in default status.

At September 30, 2021 we had 7,670 defaulted loans in our primary insured portfolio, which represented a 1.56% default rate against our 490,714 total policies in-force, and identified 9,342 loans that were enrolled in a forbearance program, including 6,566 of those in default status.

Our default population increased significantly following the outbreak of the pandemic as borrowers faced increased challenges related to COVID-19 and chose to access the forbearance program for federally backed loans codified under the CARES Act or other similar assistance programs made available by private lenders.

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Our total population of defaulted loans peaked in August 2020 and has declined every month since with consistency.

As of July 31, 2021, our default population was 8,277, representing a 1.73% default rate.

As of October 31, 2021, our default population was 6,988, representing a 1.40% default rate.

The table below highlights default and forbearance activity in our primary portfolio as of the dates indicated

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(2) Forbearance rate is calculated as the number of loans in forbearance divided by total polices in force.

While we are encouraged by the decline in our forbearance and default populations and optimistic that we will see continued improvement as the economic stress of the COVID crisis recedes, the emergence of the Delta variant or future viral waves could cause further social and economic dislocation and contribute to an increase in our forbearance and default counts in future periods.

While we are encouraged by the decline in our forbearance and default populations and optimistic that we will see continued improvement as the economic stress of the COVID crisis recedes, future viral waves could cause further social and economic dislocation and contribute to an increase in our forbearance and default counts in future periods.

We establish reserves for claims and allocated claim expenses when we are notified that a borrower is in default.

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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 fully defer the payments otherwise due during the forbearance period, over an extended length of time.

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

In response to the onset of the COVID-19 outbreak, the GSEs introduced new repayment and loan modification options to further assist borrowers with their transition out of forbearance and back into performing status.

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

At June 30, 2021, 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.

At September 30, 2021, we generally 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.

Our Master Policies require insureds to file a claim no later than 60-days after completion of a foreclosure, and in connection with the claim, the insured is generally entitled to include in the claim amount (i) up to three years of missed interest payments and (ii) certain advances, each as incurred through the date the claim is filed.

Under our Master Policies, a national foreclosure moratorium of the type currently required will not limit the amount of accrued interest (subject to the three-year limit) or advances that may be included in the claim amoun t.

In June, the GSEs extended their moratorium on the foreclosure of enterprise-backed single-family residential mortgages through September 30, 2021.

If the duration of the current foreclosure moratorium mandated by the GSEs is further extended, loans in our default inventory, in cluding those with defaults unrelated to the COVID-19 crisis that had not yet gone through foreclosure, may remain in a pre-foreclosure default status for a prolonged period of time, which would delay our receipt of certain claims for loans that do not cure and could increase the severity of claims we may ultimately be required to pay after the moratorium is lifted.

Under our Master Policies, a national foreclosure moratorium of the type enacted following the onset of the COVID-19 pandemic will not limit the amount of accrued interest (subject to the three-year limit) or advances that may be included in the claim amoun t.

Given the duration of the foreclosure moratorium mandated by the GSEs, certain loans in our default inventory, including those with defaults unrelated to the COVID-19 crisis that had not gone through foreclosure at the onset of the pandemic, have remained in pre-foreclosure default status for a prolonged period of time.

For those loans that do not ultimately cure, the delayed foreclosure cycle and resulting delay in claims submission may increase the severity of claims we ultimately pay.

Regulatory Capital Position

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The financial requirements stipulated by the GSEs are outlined in the PMIERs.

Under the PMIERs, we must maintain available assets that are equal to or exceed a minimum risk-based required asset amount, subject to a minimum floor of $400 million.

At June 30, 2021, we reported $1,887 million available assets against $1,171 million risk-based required assets.

Under the PMIERs, we must maintain available assets that are equal to or exceed a minimum risk-based required asset amount, subject to a minimum floor of $400

At September 30, 2021, we reported $1,993 million available assets against $1,366 million risk-based required assets.

Our “excess” funding position was $627 million.

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As the underlying RIF continues to run-off, this has the effect of increasing the overcollateralization within, and excess PMIERs capacity provided by, each ILN structure.

A Lock-Out Event was deemed to have occurred, effective June 25, 2020 for each of the 2017, 2018 and 2019 ILN Transactions (related to the default experience of the underlying reference pools for each respective transaction) and at inception of the 2021-1 ILN Transaction (related to the initial build of its target credit enhancement), and the amortization of reinsurance coverage, and distribution of collateral assets and amortization of insurance-linked notes was suspended for each such ILN Transaction.

A Lock-Out Event was deemed to have occurred, effective June 25, 2020 for each of the 2017, 2018 and 2019 ILN Transactions (related to the default experience of the underlying reference pools for each respective transaction) and at inception for the 2021-1 ILN Transaction (related to the initial build of its target credit enhancement), and the amortization of reinsurance coverage, and distribution of collateral assets and amortization of insurance-linked notes was suspended for each such ILN Transaction.

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 such ILN Transaction, and during such period the overcollateralization within and potential PMIERs capacity provided by each such ILN Transaction will grow as assets are preserved in the applicable reinsurance trust account.

The following table provides detail on the level of overcollateralization of each of our ILN Transactions at June 30, 2021:

($ values in thousands) 2017 ILN Transaction

2018 ILN Transaction

2019 ILN Transaction

2020-1 ILN Transaction 2020-2 ILN Transaction 2021-1 ILN Transaction

At September 30, 2021, we had an aggregate $537 million of overcollateralization available across our ILN Transactions to absorb an increase in the PMIERs risk-based required asset amount on ceded RIF.

The following table provides detail on the level of overcollateralization of each of our ILN Transactions at September 30, 2021:

($ values in thousands) 2017 ILN Transaction 2018 ILN Transaction 2019 ILN Transaction 2020-1 ILN Transaction 2020-2 ILN Transaction 2021-1 ILN Transaction

Ceded RIF $ 1,227,763 $ 1,333,991 $ 1,533,960 $ 3,128,472 $ 4,689,578 $ 8,334,990

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respectively.

(2) Overcollateralization of the 2017 ILN Transaction is equal to its current reinsurance coverage as the PMIERs required asset amount on RIF ceded under the transaction is currently below the remaining first layer retained loss.

(2) Overcollateralization for each of the 2017 and 2018 ILN Transactions is equal to their current reinsurance coverage as the PMIERs required asset amount on RIF ceded under each transaction is currently below its remaining first layer retained loss.

(3) Delinquency triggers for 2017, 2018, and 2019 ILN Transactions are set at a fixed 4.0% and assessed on a discrete monthly basis;

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(4) May not be replicated based on the rounded figures presented in the table.

At June 30, 2021, we had an aggregate $504 million of overcollateralization available across our ILN Transactions to absorb an increase in the PMIERs risk-based required asset amount on ceded RIF.

Assuming the Lock-Out Events remain in effect for each of the 2017, 2018 and 2019 ILN Transactions and our underlying RIF continues to run-off at the same rate as it did during the three months ended June 30, 2021, we estimate that our total overcollateralization would increase by up to approximately $29 million per quarter.

Our PMIERs funding requirement will go up in future periods based on the volume and risk profile of our new business production, and performance of our in-force insurance portfolio.

We estimate, however, that we will remain in compliance with our PMIERs asset requirements even if the forbearance-driven default rate on our in-force portfolio materially exceeds its current level, given our $716 million excess available asset position at June 30, 2021, the nationwide applicability of the 70% haircut on delinquent policies subject to a forbearance program accessed in response to a financial hardship related to the COVID-19 crisis, and the increasing PMIERs relief automatically provided under each of our quota share treaties and ILN Transactions.

We estimate, however, that we will remain in compliance with our PMIERs asset requirements even if the forbearance-driven default rate on our in-force portfolio materially exceeds its current level, given our $627 million excess available asset position at September 30, 2021, the nationwide applicability of the 70% haircut on delinquent policies subject to a forbearance program accessed in response to a financial hardship related to the COVID-19 crisis, and the increasing PMIERs relief automatically provided under each of our quota share treaties and ILN Transactions.

NMIC is also subject to state regulatory minimum capital requirements based on its RIF.

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We evaluate our liquidity position at both a holding company (NMIH) and primary operating subsidiary (NMIC) level.

As of June 30, 2021, we had $2.1 billion of consolidated cash and investments, including $81 million of cash and investments at NMIH.

As of September 30, 2021, we had $2.2 billion of consolidated cash and investments, including $79 million of cash and investments at NMIH.

On June 8, 2020, NMIH completed the sale of 15.9 million shares of common stock, including the exercise of a 15% overallotment option, and raised proceeds of approximately $220 million, net of underwriting discounts, commissions and other direct offering expenses.

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While such agreements are subject to revocation by the Wisconsin OCI, we do not expect such action to be taken at this time.

The Wisconsin OCI has refreshed its approval of the debt service agreement providing for the additional reimbursement by NMIC of interest expense due on our newly issued Notes and 2020 Revolving Credit Facility.

The Wisconsin OCI refreshed its approval of the debt service agreement and provided for the additional reimbursement by NMIC of interest expense due on our Notes and 2020 Revolving Credit Facility at the time each transaction was completed.

NMIC's principal sources of liquidity include (i) premium receipts on its insured portfolio and new business production, (ii) interest income on its investment portfolio and principal repayments on maturities therein, and (iii) existing cash and cash equivalent holdings.

At June 30, 2021, NMIC had $1.9 billion of cash and investments, including $48 million of cash and equivalents.

At September 30, 2021, NMIC had $2.0 billion of cash and investments, including $81 million of cash and equivalents.

NMIC's principal liquidity demands include funds for the payment of (i) reimbursable holding company expenses, (ii) premiums ceded under our reinsurance transactions (iii) claims payments, and (iv) taxes as due or otherwise deferred through the purchase of tax and loss bonds.

NMIC's cash inflow is generally significantly in excess of its cash outflow in any given period.

During the twelve-month period ended June 30, 2021, NMIC generated $300 million of cash flow from operations and received an additional $150 million of cash flow on the maturity, sale and redemption of securities held in its investment portfolio.

During the twelve-month period ended September 30, 2021, NMIC generated $316 million of cash flow from operations and received an additional $140 million of cash flow from the maturity, sale and redemption of securities held in its investment portfolio.

NMIC is not a party to any contracts (derivative or otherwise) that require it to post an increasing amount of collateral to any counterparty and NMIC's principal liquidity demands (other than claims payments) generally develop along a scheduled path ( i.e.

, are of a contractually predetermined amount and due at a contractually predetermined date).

NMIC's only use of cash that develops along an unscheduled path is claims payments.

NMIC's only use of cash that

develops along an unscheduled path is claims payments.

Given the breadth and duration of forbearance programs available to borrowers, separate foreclosure moratoriums that have been enacted at a local, state and federal level, and the general duration of the default to foreclosure to claim cycle, we do not expect NMIC to use a meaningful amount of cash to settle claims in the near-term.

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In June 2020, the GSEs issued guidance to the PMIERs (subsequently amended and restated in each of September 2020, December 2020 and June 2021) that, among other items, requires us to notify them of our intent to cancel coverage on policies for which servicers have failed to make timely premium payments so that the GSEs can pay the premiums directly to us and preserve the mortgage insurance coverage.

Through June 30, 2021, we did not see any notable changes in servicer payment practices, with servicers generally continuing to remit monthly premium payments as scheduled, including those for policies covering loans that are in a forbearance program.

Through September 30, 2021, we did not see any notable changes in servicer payment practices, with servicers generally continuing to remit monthly premium payments as scheduled, including those for policies covering loans that are in a forbearance program.

Investment portfolio

At June 30, 2021, we had $2.1 billion of cash and invested assets.

At September 30, 2021, we had $2.2 billion of cash and invested assets.

Our investment strategy equally prioritizes capital preservation alongside income generation, and we have a long-established investment policy that sets conservative limits for asset types, industry sectors, single issuers and instrument credit ratings.

At June 30, 2021, our investment portfolio was comprised of 100% fixed income assets with 100% of our holdings rated investment grade and our portfolio having an average rating of "A+." At June 30, 2021, our portfolio was in a $40 million aggregate unrealized gain position;

At September 30, 2021, our investment portfolio was comprised of 100% fixed income assets with 100% of our holdings rated investment grade and our portfolio having an average rating of "A+." At September 30, 2021, our portfolio was in a $30 million aggregate unrealized gain position;

it was highly liquid and highly diversified with no Level 3 asset positions and no single issuer concentration greater than 1.4%.

We did not record any allowance for credit losses in the portfolio during the three months ended June 30, 2021, as we expect to recover the amortized cost basis of all securities held.

The pre-tax book yield on our investment portfolio was 2.0% for the three months ended June 30, 2021.

We did not record any allowance for credit losses in the portfolio during the three months ended September 30, 2021, as we expect to recover the amortized cost basis of all securities held.

The pre-tax book yield on our investment portfolio was 2.0% for the three months ended September 30, 2021.

At the onset of the COVID-19 crisis, we decided to prioritize liquidity and increased our cash and equivalent holdings as a percentage of our total portfolio.

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Net Premiums Written and Net Premiums Earned

We set our premium rates on individual policies based on the risk characteristics of the underlying mortgage loans and borrowers, and in accordance with our filed rates and applicable rating rules.

We set our premium rates on individual policies based on the risk characteristics of the underlying mortgage loans and

borrowers, and in accordance with our filed rates and applicable rating rules.

On June 4, 2018, we introduced a proprietary risk-based pricing platform, which we refer to as Rate GPS.

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For single premiums, we receive a single premium payment at origination, which is earned over the estimated life of the policy.

Substantially all of our single premium policies in force as of June 30, 2021 were non-refundable under most cancellation scenarios.

Substantially all of our single premium policies in force as of September 30, 2021 were non-refundable under most cancellation scenarios.

If non-refundable single premium policies are canceled, we immediately recognize the remaining unearned premium balances as earned premium revenue.

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Quota share reinsurance

NMIC is a party to four outstanding quota share reinsurance treaties – the 2016 QSR Transaction, effective September 1, 2016, the 2018 QSR Transaction, effective January 1, 2018, the 2020 QSR Transaction, effective April 1, 2020 and the 2021 QSR Transaction, effective January 1, 2021.

NMIC is a party to quota share reinsurance treaties – the 2016 QSR Transaction, effective September 1, 2016, the 2018 QSR Transaction, effective January 1, 2018, the 2020 QSR Transaction, effective April 1, 2020, the 2021 QSR Transaction, effective January 1, 2021, the 2022 QSR Transaction, effective October 1, 2021, and the 2023 QSR Transaction, effective January 1, 2023.

Under each of the QSR Transactions, NMIC cedes a proportional share of its risk on eligible policies written during a discrete period to panels of third-party reinsurance providers.

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Under the terms of the 2021 QSR Transaction, NMIC cedes premiums earned related to 22.5% of the risk on eligible policies written in 2021 (subject to an aggregate risk written limit), in exchange for reimbursement of ceded claims and claim expenses on covered po licies, a 20% ceding commission, and a profit commission of up to 57.5% that varies directly and inversely with ceded claims.

Under the terms of the 2022 and 2023 QSR Transactions, NMIC will cede premiums earned related to 20% of the risk on eligible policies written between January 1, 2022 and December 31, 2023, in exchange for reimbursement of ceded claims and claims expenses on covered policies, a 20% ceding commission, and a profit commission of up to 62% that varies directly and inversely with ceded claims.

If NMIC exhausts the aggregate risk written limit of the 2021 QSR Transaction prior to December 31, 2021, the 2022 QSR Transaction will automatically incept and NMIC will begin to cede risk on eligible policies under the treaty prior to January 1, 2022.

NMIC may elect to terminate its engagement with individual reinsurers on a run-off basis ( i.e., reinsurers continue providing coverage on all risk ceded prior to the termination date, with no new cessions going forward) or cut-off basis ( i.e., the reinsurance arrangement is completely terminated with NMIC recapturing all previously ceded risk) under certain circumstances.

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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.

As the reinsurance coverage decreases, a prescribed amount of collateral held in trust by the Oaktown Re Vehicles is distributed to ILN Transaction note-holders as amortization of the outstanding insurance-linked note principal balances occurs.

balances occurs.

The outstanding reinsurance coverage amounts stop amortizing, and the collateral distribution to ILN Transaction note-holders and amortization of insurance-linked note principal is suspended if certain credit enhancement or delinquency thresholds, as defined in each agreement, are triggered (each, a Lock-Out Event).

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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, 2021.

Current amounts are presented as of September 30, 2021.

( $ values in thousands)

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(3) Approximately 1% of the production covered by the 2021-1 ILN Transaction has coverage reporting dates between July 1, 2019 and September 30,

(4) As of June 30, 2021, the current reinsurance coverage amount on the 2021-1 ILN transaction is equal to the initial reinsurance coverage, as the

(4) As of September 30, 2021, the current reinsurance coverage amount on the 2021-1 ILN transaction is equal to the initial reinsurance coverage, as the

reinsurance coverage provided by Oaktown Re will not decrease until its target credit enhancement is met.

See Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance " for further discussion of these third-party reinsurance arrangements.

On October 26, 2021, NMIC secured $363.6 million of aggregate excess-of-loss reinsurance coverage at inception for an existing portfolio of policies primarily written from April 1, 2021 to September 30, 2021, through a mortgage insurance-linked notes offering by Oaktown Re VII.

The reinsurance coverage amount under the terms of the 2021-2 ILN Transaction decreases from $363.6 million at inception over a 12.5 year period as the underlying covered mortgages are amortized or repaid, and/or the mortgage insurance coverage is canceled.

The outstanding reinsurance coverage amount will begin amortizing after an initial period in which a target level of credit enhancement is obtained.

For the reinsurance coverage period, NMIC retains the first layer of $146.2 million of aggregate losses and Oaktown Re VII then provides second layer coverage up to the outstanding reinsurance coverage amount.

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

Portfolio Data

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Unless otherwise noted, the tables below do not include the effects of our third-party reinsurance arrangements described above.

Primary and pool IIF and NIW As of and for the three months ended For the six months ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Primary and pool IIF and NIW As of and for the three months ended For the nine months ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

IIF NIW IIF NIW NIW

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Total $ 144,957 $ 18,084 $ 106,609 $ 18,499 $ 67,232 $ 42,920

For the three and six months ended June 30, 2021, NIW increased 73% and 101%, respectively, compared to the three and six months ended June 30, 2020, driven by growth in our monthly and single premium policy production tied to the increased penetration of existing customer accounts and new customer account activations, as well as growth in the size of the total mortgage insurance market.

For the three months ended June 30, 2021, monthly premium polices accounted for 85% of our NIW, compared to 91% for the three months ended June 30, 2020.

As of June 30, 2021, monthly premium policies accounted for 86% of our primary IIF, compared to 84% at June 30, 2020.

Total IIF increased 36% at June 30, 2021 compared to June 30, 2020, primarily due to the NIW generated between such measurement dates, partially offset by the run-off of in-force policies.

Our persistency rate decreased to 54% at June 30, 2021 from 64% at June 30, 2020, reflecting the impact of increased refinancing activity during the intervening twelve-month period.

For the three months ended September 30, 2021, NIW decreased 2%, compared to the three months ended September 30, 2020, due to a decline in the size of the total mortgage insurance market.

Total private mortgage insurance industry NIW volume was $181 billion in the third quarter of 2020 – the largest quarterly result ever recorded for the industry.

The impact of the year-on-year decline in total private mortgage insurance industry volume was partially offset by growth in our customer franchise and market presence tied to the increased penetration of existing customer accounts and new customer account activations.

For the nine months ended September 30, 2021, NIW increased 57%, compared to the nine months ended September 30, 2020, driven by growth in our monthly and single premium policy production tied to the growth in our customer franchise and market presence.

Total IIF increased 36% at September 30, 2021 compared to September 30, 2020, primarily due to the NIW generated between such measurement dates, partially offset by the run-off of in-force policies.

Our persistency rate decreased to 58% at September 30, 2021 from 60% at September 30, 2020, reflecting the impact of increased refinancing activity during the intervening twelve-month period.

The following table presents net premiums written and earned for the periods indicated.

Primary and pool premiums written and earned For the three months ended For the six months ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Primary and pool premiums written and earned For the three months ended For the nine months ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

(In Thousands)

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Net premiums earned 113,594 98,802 330,361 296,463

For the three and six months ended June 30, 2021, net premiums written increased 41% and 34%, respectively, and net premiums earned increased 12% and 10%, respectively, compared to the three and six months ended June 30, 2020.

For the three and nine months ended September 30, 2021, net premiums written increased 10% and 25%, respectively, and net premiums earned increased 15% and 11%, respectively, compared to the three and nine months ended September 30, 2020.

The growth in net premiums written and earned were primarily due to the growth of our IIF and increased monthly policy production, partially offset by increased cessions under the QSR and ILN Transactions.

Net premiums written grew at an accelerated rate compared to net premiums earned due to an increase in the volume and mix of our single premium policy production and decline in the contribution of single premium policy cancellations during the three and six months ended June 30, 2021.

Pool premiums written and earned for the three and six months ended June 30, 2021 and 2020, were $0.4 million and $0.9 million, and $0.7 million and $1.4 million, respectively, before giving effect to the 2016 QSR Transaction, under which all of our written and earned pool premiums are ceded.

Pool premiums written and earned for the three and nine months ended September 30, 2021 and 2020, were $0.4 million and $1.3 million, and $0.6 million and $2.0 million, respectively, before giving effect to the 2016 QSR Transaction, under which all of our written and earned pool premiums are ceded.

A portion of our ceded pool premiums written and earned are recouped through profit commission.

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Primary portfolio trends As of and for the three months ended

June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020 June 30, 2020

September 30, 2021 June 30, 2021 March 31, 2021 December 31, 2020 September 30, 2020

($ Values In Millions, except as noted below)

34 unchanged sentences

The table below presents a summary of the change in total primary IIF for the dates and periods indicated.

Primary IIF For the three months ended For the six months ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Primary IIF For the three months ended For the nine months ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

(In Millions)

7 unchanged sentences

The table below presents a summary of our primary IIF and RIF by book year as of the dates indicated.

Primary IIF and RIF As of June 30, 2021 As of June 30, 2020

Primary IIF and RIF As of September 30, 2021 As of September 30, 2020

IIF RIF IIF RIF

(In Millions)

June 30, 2021 $ 48,314 $ 11,986 $ — $ —

September 30, 2021 $ 64,885 $ 16,274 $ — $ —

2020 47,196 11,848 40,969 10,255

12 unchanged sentences

We calculate the LTV of a loan as the percentage of the original loan amount to the original purchase value of the property securing the loan.

Primary NIW by FICO For the three months ended For the six months ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Primary NIW by FICO For the three months ended For the nine months ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

(In Millions)

7 unchanged sentences

Weighted average FICO 749 764 753 761

Primary NIW by LTV For the three months ended For the six months ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Primary NIW by LTV For the three months ended For the nine months ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

(In Millions)

5 unchanged sentences

Weighted average LTV 91.8 % 90.7 % 91.3 % 90.8 %

Primary NIW by purchase/refinance mix For the three months ended For the six months ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Primary NIW by purchase/refinance mix For the three months ended For the nine months ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

(In Millions)

4 unchanged sentences

Primary IIF by FICO As of

June 30, 2021 June 30, 2020

September 30, 2021 September 30, 2020

($ Values In Millions)

7 unchanged sentences

Primary RIF by FICO As of

June 30, 2021 June 30, 2020

September 30, 2021 September 30, 2020

($ Values In Millions)

7 unchanged sentences

Primary IIF by LTV As of

June 30, 2021 June 30, 2020

September 30, 2021 September 30, 2020

($ Values In Millions)

5 unchanged sentences

Primary RIF by LTV As of

June 30, 2021 June 30, 2020

September 30, 2021 September 30, 2020

($ Values In Millions)

5 unchanged sentences

Primary RIF by Loan Type As of

June 30, 2021 June 30, 2020

September 30, 2021 September 30, 2020

Fixed 99 % 99 %

3 unchanged sentences

Total 100 % 100 %

The table below presents selected primary portfolio statistics, by book year, as of June 30, 2021.

As of June 30, 2021

The table below presents selected primary portfolio statistics, by book year, as of September 30, 2021.

As of September 30, 2021

Book Year Original Insurance Written Remaining Insurance in Force % Remaining of Original Insurance Policies Ever in Force Number of Policies in Force Number of Loans in Default # of Claims Paid Incurred Loss Ratio (Inception to Date) (1)

17 unchanged sentences

The following table shows the distribution by state of our primary RIF as of the periods indicated.

The distribution of our primary RIF as of June 30, 2021 is not necessarily representative of the geographic distribution we expect in the future.

The distribution of our primary RIF as of September 30, 2021 is not necessarily representative of the geographic distribution we expect in the future.

Top 10 primary RIF by state As of

June 30, 2021 June 30, 2020

September 30, 2021 September 30, 2020

California 10.2 % 11.3 %

5 unchanged sentences

Illinois 3.7 4.0

Washington 3.6 3.4

Georgia 3.7 3.0

Washington 3.5 3.5

Pennsylvania 3.2 3.5

23 unchanged sentences

The FHFA and GSEs have offered further assistance by introducing new repayment and loan modification options to assist borrowers with their transition out of forbearance programs and default status.

At June 30, 2020 and 2021, 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.

At September 30, 2020 and 2021, we generally 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.

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

For the three months ended For the six months ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

For the three months ended For the nine months ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

(In Thousands)

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For example, if a loan had defaulted in a prior year and subsequently cured and later re-defaulted in the current year, that default would be included in the current year.

Amounts are presented net of reinsurance and included $9.8 million attributed to net case reserves and $5.6 million attributed to net IBNR reserves for the six months ended June 30, 2021 and $34.7 million attributed to net case reserves and $7.1 million attributed to net IBNR reserves for the six months ended June 30, 2020.

Amounts are presented net of reinsurance and included $14.0 million attributed to net case reserves and $4.8 million attributed to net IBNR reserves for the nine months ended September 30, 2021 and $55.4 million attributed to net case reserves and $4.8 million attributed to net IBNR reserves for the nine months ended September 30, 2020.

(3) Related to insured loans with defaults occurring in prior years, which have been continuously in default before the start of the current year.

Amounts are presented net of reinsurance and included $1.1 million attributed to net case reserves and $5.0 million attributed to net IBNR reserves for the six months ended June 30, 2021 and $1.1 million attributed to net case reserves and $1.3 million attributed to net IBNR reserves for the six months ended June 30, 2020.

Amounts are presented net of reinsurance and included $1.8 million attributed to net case reserves and $5.0 million attributed to net IBNR reserves for the nine months ended September 30, 2021 and $4.0 million attributed to net case reserves and $1.3 million attributed to net IBNR reserves for the nine months ended September 30, 2020.

The "claims incurred" section of the table above shows claims and claim expenses incurred on defaults occurring in current and prior years, including IBNR reserves and is presented net of reinsurance.

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 $81.8 million related to prior year defaults remained as of June 30, 2021.

Gross reserves of $80.6 million related to prior year defaults remained as of September 30, 2021.

The following table provides a reconciliation of the beginning and ending count of loans in default.

For the three months ended For the six months ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

For the three months ended For the nine months ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

Beginning default inventory 8,764 10,816 12,209 1,448

4 unchanged sentences

Ending default inventory 7,670 13,765 7,670 13,765

Ending default inventory declined from June 30, 2020 to June 30, 2021 as an increased number of borrowers impacted by the COVID-19 pandemic cured their delinquencies, and fewer new defaults emerged as the acute economic stress of the pandemic crisis began to recede.

While our default population declined from June 30, 2020 to June 30, 2021, our default inventory remains elevated compared to historical experience due to the continued challenges certain 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.

As of June 30, 2021, 7,822 of our 8,764 defaulted loans were in a COVID-19 related forbearance program.

Ending default inventory declined from September 30, 2020 to September 30, 2021 as an increased number of borrowers impacted by the COVID-19 pandemic cured their delinquencies, and fewer new defaults emerged as the acute economic stress of the pandemic crisis began to recede.

While our default population declined from September 30, 2020 to September 30, 2021, our default inventory remains elevated compared to historical experience due to the continued challenges certain borrowers are facing related to the COVID-19 outbreak and their decision to access the forbearance program for federally backed loans codified under the CARES Act or similar programs made available by private lenders.

As of September 30, 2021, 6,566 of our 7,670 defaulted loans were in a COVID-19 related forbearance program.

The following table provides details of our claims paid, before giving effect to claims ceded under the QSR Transactions and ILN Transactions, for the periods indicated.

For the three months ended For the six months ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

For the three months ended For the nine months ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

($ In Thousands)

4 unchanged sentences

55 % 67 % 60 % 80 %

(1) Count include s three and four claims settled without payment during the three and six months ended June 30, 2021, respectively, and one and two claims settled without payment during the three and six months ended 2020, respectively.

(1) Count include s six and ten claims settled without payment during the three and nine months ended September 30, 2021, respectively, and six and eight claims settled without payment during the three and nine months ended September 30, 2020, respectively.

(2) Severity represents the total amount of claims paid including claim expenses divided by the related RIF on the loan at the time the claim is perfected, and is calculated including claims settled without payment.

The number of claims paid during the three and six months ended June 30, 2021 decreased compared to the three and six months ended June 30, 2020, despite the growth and seasoning of our insured portfolio, and elevated level of defaults (compared to pre-COVID historical experience), primarily as a result of the forbearance program and foreclosure moratorium implemented by the GSEs in response to the COVID outbreak and codified under the CARES Act.

The Company paid 24 and 59 claims during the three and nine months ended September 30, 2021, respectively, and 40 and 123 claims during three and nine months ended September 30, 2020, respectively.

The number of claims paid in each period was low relative to the size of our insured portfolio and the number of defaulted loans we reported, primarily due to the forbearance program and foreclosure moratorium implemented by the GSEs in response to the COVID outbreak and codified under the CARES Act.

Such forbearance and foreclosure programs have extended, and may ultimately interrupt, the timeline over which loans would otherwise progress through the default cycle to a paid claim.

Our claims severity for the three and six months ended June 30, 2021 was 66% and 64%, respectively, compared to 89% and 87% for the three and six months ended June 30, 2020, respectively.

Claims severity for the three and six months ended June 30, 2021 benefited from the resiliency of the housing market and broad national house price appreciation.

Our claims paid experience for the three and nine months ended September 30, 2021, further benefited from the resiliency of the housing market and broad national house price appreciation.

An increase in the value of the homes collateralizing the mortgages we insure provides defaulted borrowers with alternative paths and incentives to cure their loan prior to the development of a claim.

Our claims severity for the three and nine months ended September 30, 2021 was 55% and 60%, respectively, compared to 67% and 80% for the three and nine months ended September 30, 2020, respectively.

Claims severity for the three and nine months ended September 30, 2021 benefited from the same resiliency of the housing market and broad national house price appreciation as our claims paid.

An increase in the value of the homes collateralizing the mortgages we insure provides additional equity support to our risk exposure and raises the prospect of a third-party sale of a foreclosed property, which can mitigate the severity of our settled claims.

1 unchanged sentence

Average reserve per default:

As of June 30, 2021 As of June 30, 2020

As of September 30, 2021 As of September 30, 2020

(In Thousands)

2 unchanged sentences

(2) Amount includes claims adjustment expenses.

Average reserve per default increased from June 30, 2020 to June 30, 2021, primarily due to the “aging” of early COVID-related defaults.

While we have 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, we have generally increased such reserves over time as individual defaults remain outstanding or “age.” The growth in our average reserve per default from June 30, 2020 to June 30, 2021 far exceeded the growth in our aggregate gross reserve position in the intervening period as the impact of the increase in our average reserve per default was largely offset by the decline in our total default inventory.

Average reserve per default increased from September 30, 2020 to September 30, 2021, primarily due to the “aging” of early COVID-related defaults.

While we have generally 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, we have increased such reserves over time as individual defaults remain outstanding or “age.” The growth in our average reserve per default from September 30, 2020 to September 30, 2021 far exceeded the growth in our aggregate gross reserve position in the intervening period as the impact of the increase in our average reserve per default was largely offset by the decline in our total default inventory.

GSE Oversight

13 unchanged sentences

The following table provides a comparison of the PMIERs available assets and risk-based required asset amount as reported by NMIC as of the dates indicated.

June 30, 2021 June 30, 2020

September 30, 2021 September 30, 2020

(In Thousands)

1 unchanged sentence

Risk-based required assets 1,365,656 990,678

Available assets were $1.9 billion at June 30, 2021, compared to $1.7 billion at June 30, 2020.

Available assets were $2.0 billion at September 30, 2021, compared to $1.7 billion at September 30, 2020.

The $321 million increase in available assets between the dates presented was primarily driven by NMIC's positive cash flow from operations during the intervening period.

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however, we cannot currently estimate the impact such transition will have on our operations or financial results.

CEO Transition

On September 9, 2021, we announced that Adam Pollitzer, currently the company’s Executive Vice President and Chief Financial Officer, was appointed as the company's President and Chief Executive Officer, effective January 1, 2022.

Pollitzer will also join the company’s Board of Directors upon assuming his new role.

He succeeds Claudia Merkle, who will step down as Chief Executive Officer and as a member of the Board, effective December 31, 2021.

During the three months ended September 30, 2021, the Company recorded $1.3 million of severance, restricted stock modification and other expenses related to this transition.

Consolidated Results of Operations

Consolidated statements of operations Three months ended Six months ended

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

Consolidated statements of operations Three months ended Nine months ended

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

Revenues ($ in thousands, except for per share data)

1 unchanged sentence

Net investment income 9,831 8,337 28,027 23,511

Net realized investment gains 12 711 12 639

Net realized investment gains (losses) 3 (4) 15 635

Other revenues 613 648 1,597 2,771

17 unchanged sentences

33.3 % 50.2 % 35.2 % 51.4 %

Three months ended Six months ended

Three months ended Nine months ended

Non-GAAP financial measures (4)

June 30, 2021 June 30, 2020 June 30, 2021 June 30, 2020

September 30, 2021 September 30, 2020 September 30, 2021 September 30, 2020

($ in thousands, except for per share data)

6 unchanged sentences

(4) See " Explanation and Reconciliation of Our Use of Non-GAAP Financial Measures, " below.

Net premiums earned were $110.9 million and $216.8 million for the three and six months ended June 30, 2021, respectively, compared to $98.9 million and $197.7 million for the three and six months ended June 30, 2020, respectively.

Net premiums earned were $113.6 million and $330.4 million for the three and nine months ended September 30, 2021, respectively, compared to $98.8 million and $296.5 million for the three and nine months ended September 30, 2020, respectively.

The year-on-year increase in net premiums earned in each respective period was primarily driven by the growth of our IIF, partially offset by an increase in cessions made under our QSR and ILN Transactions, and a decline in the contribution from single premium policy cancellations.

Net investment income was $9.4 million and $18.2 million for the three and six months ended June 30, 2021,

respectively, compared to $7.1 million and $15.2 million for the three and six months ended June 30, 2020, respectively.

The year-on-year increase in net investment income in each respective period was driven by growth in the size of our total investment portfolio, partially offset by a decline in book yield tied to the prevailing interest rate and credit spread environment.

Other revenues were $483 thousand and $1.0 million for the three and six months ended June 30, 2021, respectively, compared to $1.2 million and $2.1 million for the three and six months ended June 30, 2020, respectively.

Net investment income was $9.8 million and $28.0 million for the three and nine months ended September 30, 2021,

respectively, compared to $8.3 million and $23.5 million for the three and nine months ended September 30, 2020, respectively.

The year-on-year increase in net investment income in each respective period was primarily driven by growth in the size of our total investment portfolio, partially offset by a decline in book yield tied to the prevailing interest rate and credit spread environment.

Other revenues were $613 thousand and $1.6 million for the three and nine months ended September 30, 2021, respectively, compared to $648 thousand and $2.8 million for the three and nine months ended September 30, 2020, respectively.

Other revenues represent underwriting fee revenue generated by our subsidiary, NMIS, which provides outsourced loan review services to mortgage loan originators.

3 unchanged sentences

We also incur service expenses in connection with NMIS' outsourced loan review activities.

Insurance claims and claim expenses were $4.6 million and $9.6 million for the three and six months ended June 30, 2021, respectively, compared to $34.3 million and $40.0 million for the three and six months ended June 30, 2020, respectively.

Insurance claims and claim expenses were $3.2 million and $12.8 million for the three and nine months ended September 30, 2021, respectively, compared to $15.7 million and $55.7 million for the three and nine months ended September 30, 2020, respectively.

The year-on-year decline in insurance claims and claim expenses in each respective period primarily reflects a significant decrease in the number of new defaults emerging on loans impacted by the COVID-19 outbreak.

Insurance claims and claim expenses during the three and six months ended June 30, 2021 also benefited from cure activity and a release of reserves previously held against certain loans that defaulted prior to the onset of the COVID pandemic.

Underwriting and operating expenses were $34.7 million and $68.8 million for the three and six months ended June 30, 2021, respectively, compared to $30.4 million and $62.6 million for the three and six months ended June 30, 2020.

The year-on-year increase in underwriting and operating expenses in each respective period primarily relates to the recognition of previously deferred policy acquisition costs taken in connection with in-force portfolio run-off, partially offset by reductions in payroll, travel and entertainment, and office administrative expenses as a result of the COVID-19 outbreak.

Underwriting and operating expenses included capital market reinsurance transaction costs of $1.6 million and $2.0 million, respectively, for the three months and six months ended June 30, 2021, and $2.8 million and $3.3 million, respectively, for the three and six months ended June 30, 2020.

Service expenses were $481 thousand and $1.1 million for the three and six months ended June 30, 2021, respectively, compared to $1.1 million and $1.8 million for the three and six months ended June 30, 2020, respectively.

Insurance claims and claim expenses during the three and nine months ended September 30, 2021 also benefited from cure activity and a release of reserves previously held against certain loans that defaulted prior to the onset of the COVID pandemic.

Underwriting and operating expenses were $34.7 million and $103.5 million for the three and nine months ended September 30, 2021, respectively, compared to $34.0 million and $96.6 million for the three and nine months ended September 30, 2020.

The year-on-year increase in underwriting and operating expenses for the three months ended September 30, 2021 primarily reflects severance, restricted stock modification and other expenses incurred in connection with the CEO transition we announced on September 9, 2021, as well as an increase in travel and entertainment expenses tied to the easing of COVID-19 related restrictions, incremental depreciation and amortization incurred in connection with the completion and on-lining of certain development initiatives, and other (non-CEO transition) payroll and related amounts.

Such increases were largely offset by a decline in administrative costs due to the timing of ILN issuance and a reduction in technology service expenses tied to our long-term IT services agreement with Tata Consultancy Services.

See Item 1 of our 2020 10K, "Business - Information Technology Systems and Intellectual Property" and Item 7 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Information Technology" for more details about IT services agreement entered into with Tata Consultancy Services.

The year-on-year increase in underwriting and operating expenses for the nine months ended September 30, 2021, further reflects an increase in the recognition of previously deferred policy acquisition costs taken in connection with in-force portfolio run-off.

Underwriting and operating expenses included capital market reinsurance transaction costs of $0.5 million and $2.5 million, respectively, for the three months and nine months ended September 30, 2021, and $2.3 million and $2.9 million, respectively, for the three and nine months ended September 30, 2020, as well as $1.3 million of CEO-transition related expenses for the three and nine months ended September 30, 2021.

Service expenses were $787 thousand and $1.9 million for the three and nine months ended September 30, 2021, respectively, compared to $557 thousand and $2.4 million for the three and nine months ended September 30, 2020, respectively.

Service expenses represent third-party costs incurred by NMIS in connection with the services it provides.

1 unchanged sentence

Amounts incurred as service expenses generally correspond with amounts recognized in other revenues in the same periods.

Interest expense was $7.9 million and $15.8 million for the three and six months ended June 30, 2021, respectively, compared to $5.9 million and $8.7 million for the three and six months ended June 30, 2020, respectively.

The year-on-year increase in interest expense in each respective period is due to the increased amount and cost of our outstanding debt following the issuance of the $400 million Notes and retirement of the $150 million 2018 Term Loan in June 2020.

Interest expense was $7.9 million and $23.8 million for the three and nine months ended September 30, 2021, respectively, compared to $7.8 million and $16.5 million for the three and nine months ended September 30, 2020, respectively.

Interest expense for the three and nine months ended September 30, 2021 and three months ended September 30, 2020 includes the carrying costs of our $400 million Notes for each period in full, while interest expense for the nine months ended September 30, 2020 includes partial period carry costs for the Notes (which were issued on June 19, 2020) and partial period carrying costs for the $150 million 2018 Term Loan (which was retired with a portion of net proceeds from the Notes offering).

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

See Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 4, Debt.

Income tax expense was $16.1 million and $30.7 million for the three and six months ended June 30, 2021, respectively, compared to $8.1 million and $22.0 million for the three and six months ended June 30, 2020, respectively.

Income tax expense was $17.3 million and $48.0 million for the three and nine months ended September 30, 2021, respectively, compared to $11.2 million and $33.2 million for the three and nine months ended September 30, 2020, respectively.

The year-on-year increase in income tax expense in each respective period was primarily driven by growth in our pre-tax income.

Our effective tax rate on pre-tax income was 21.9% and 21.8% for the three and six months ended June 30, 2021, respectively, compared to 23.2% and 20.5% for the three and six months ended June 30, 2020, respectively.

taxpayer, we are subject to a U.S.

Our effective tax rate on pre-tax income was 22.3% and 21.9% for the three and nine months ended September 30, 2021, respectively, compared to 22.6% and 21.2% for the three and nine months ended September 30, 2020, respectively.

taxpayer, we are subject to a statutory U.S.

federal corporate income tax rate of 21%.

Our provision for income taxes for interim periods is established based on our estimated annual effective tax rate for a given year and reflects the impact of discrete tax effects in the period in which they occur.

Our effective tax rates for the three and six months ended June 30, 2021 and 2020 reflect the discrete tax effects of the vesting of RSUs and exercise of options, and the change in fair value of our warrant liability in each period.

Our effective tax rates for the three and nine months ended September 30, 2021 and 2020 reflect the discrete tax effects of the vesting of RSUs and exercise of options, and the change in fair value of our warrant liability in each period.

See Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 9, Income Taxes."

Net income was $57.5 million and $110.4 million for the three and six months ended June 30, 2021, respectively, compared to $26.8 million and $85.1 million for the three and six months ended June 30, 2020, respectively.

Adjusted net income was $58.1 million and $111.5 million for the three and six months ended June 30, 2021, respectively, compared to $29.7 million and $82.5 million for the three and six months ended June 30, 2020, respectively.

The year-on-year increases in net income and adjusted net income in each respective period were primarily driven by growth in our total revenues and decrease in insurance claims and claim expenses, partially offset by an increase in our interest expense, underwriting and operating expenses and income tax expense.

Diluted EPS was $0.65 and $1.27 for the three and six months ended June 30, 2021, respectively, compared to $0.36 and $1.11 for the three and six months ended June 30, 2020, respectively.

Adjusted diluted EPS was $0.67 and $1.29 for the three and six months ended June 30, 2021, respectively, compared to $0.40 and $1.14 for the three and six months ended June 30, 2020, respectively.

Diluted and adjusted diluted EPS increased due to growth in net income and adjusted net income, respectively, partially offset by an increase in weighted average diluted shares outstanding in connection with the issuance of 15.9 million shares of common stock we completed in June 2020, and, to a lesser extent, stock awards made under our share-based compensation plans.

Net income was $60.2 million and $170.6 million for the three and nine months ended September 30, 2021, respectively, compared to $38.2 million and $123.3 million for the three and nine months ended September 30, 2020, respectively.

Adjusted net income was $61.8 million and $173.3 million for the three and nine months ended September 30, 2021, respectively, compared to $40.4 million and $122.9 million for the three and nine months ended September 30, 2020, respectively.

The year-on-year increases in net income and adjusted net income in each respective period were primarily driven by growth in our total revenues and decrease in insurance claims and claim expenses, partially offset by an increase in our interest expenses, underwriting and operating expenses, and income tax expense.

Diluted EPS was $0.69 and $1.96 for the three and nine months ended September 30, 2021, respectively, compared to $0.45 and $1.55 for the three and nine months ended September 30, 2020, respectively.

Adjusted diluted EPS was $0.71 and $2.00 for the three and nine months ended September 30, 2021, respectively, compared to $0.47 and $1.60 for the three and nine months ended September 30, 2020, respectively.

Diluted and adjusted diluted EPS increased due to growth in net income and adjusted net income, respectively, partially offset for the nine months ended September 30, 2021 compared to the nine months ended September 30, 2020, by an increase in weighted average diluted shares outstanding in connection with the issuance of 15.9 million shares of common stock we completed in June 2020, and, to a lesser extent for all comparative periods, by stock awards made under our share-based compensation plans.

The non-GAAP financial measures adjusted income before tax, adjusted net income and adjusted diluted EPS are presented to enhance the comparability of financial results between periods.

Non-GAAP Financial Measure Reconciliations For the three months ended June 30, For the six months ended June 30,

Non-GAAP Financial Measure Reconciliations For the three months ended September 30, For the nine months ended September 30,

2021 2020 2021 2020

3 unchanged sentences

Net income $ 60,193 $ 38,179 $ 170,606 $ 123,298

Net realized investment gain (12) (711) (12) (639)

Net realized investment (gains) loss (3) 4 (15) (635)

(Gain) loss from change in fair value warrant liability — 437 (454) (4,286)

Capital market transaction costs 481 2,254 2,474 5,518

Other infrequent, unusual or non-operating items (1)

1,289 — 1,289 —

Adjusted income before tax 79,218 52,052 221,856 157,087

Income tax expense on adjustments (2)

139 474 555 1,025

Adjusted net income $ 61,821 $ 40,400 $ 173,345 $ 122,870

1 unchanged sentence

Adjusted diluted EPS $ 0.71 $ 0.47 $ 2.00 $ 1.60

(1) Represents severance, restricted stock modification and other expenses incurred in connection with the CEO transition announced on September 9,

See " CEO Transition" above.

(2) Marginal tax impact of non-GAAP adjustments is calculated based on our statutory U.S.

federal corporate income tax rate of 21%, except for those

items that are not eligible for an income tax deduction.

Such non-deductible items include gains or losses from the change in the fair value of our warrant liability and certain costs incurred in connection with the CEO transition, which are limited under Section 162(m) of the Internal Revenue Code.

Explanation and Reconciliation of Our Use of Non-GAAP Financial Measures

5 unchanged sentences

their measures may not be comparable to those we calculate and present.

net realized gains or losses from our investment portfolio, and discrete, non-recurring and non-operating items in the periods in which such items are incurred.

Adjusted net income is defined as GAAP net income, excluding the after-tax effects of the gain or loss related to the change in fair value of our warrant liability, periodic costs incurred in connection with capital markets transactions, net realized gains or losses from our investment portfolio, and discrete, non-recurring and non-operating items in the periods in which such items are incurred.

Adjusted income before tax is defined as GAAP income before tax, excluding the pre-tax effects of the gain or loss related to the change in fair value of our warrant liability, periodic costs incurred in connection with capital markets transactions, net realized gains or losses from our investment portfolio, and other infrequent, unusual or non-operating items in the periods in which such items are incurred.

Adjusted net income is defined as GAAP net income, excluding the after-tax effects of the gain or loss related to the change in fair value of our warrant liability, periodic costs incurred in connection with capital markets transactions, net realized gains or losses from our investment portfolio, and other infrequent, unusual or non-operating items in the periods in which such items are incurred.

Adjustments to components of pre-tax income are tax effected using the applicable federal statutory tax rate for the respective periods.

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The recognition of the net realized investment gains or losses can vary significantly across periods as the timing is highly discretionary and is influenced by factors such as market opportunities, tax and capital profile, and overall market cycles that do not reflect our current period operating results.

• Infrequent or unusual non-operating items .

Items that are the result of unforeseen or uncommon events, which occur separately from operating earnings and are not expected to recur in the future.

• Other infrequent, unusual or non-operating items .

Items that are the result of unforeseen or uncommon events, and are not expected to recur with frequency in the future.

Identification and exclusion of these items provides clarity about the impact special or rare occurrences may have on our current financial performance.

Infrequent, unusual or non-operating adjustments for the three and nine months ended September 30, 2021, include severance, restricted stock modification and other expenses incurred in connection with the CEO transition we announced on September 9, 2021.

Past adjustments under this category include the effects of the release of the valuation allowance recorded against our net federal and certain state net deferred tax assets in 2016 and the re-measurement of our net deferred tax assets in connection with tax reform in 2017.

We believe such items are non-recurring in nature, are not part of our primary operating activities and do not reflect our current period operating results.

Consolidated balance sheets June 30, 2021 December 31, 2020

We believe such items are infrequent or non-recurring in nature, and are not indicative of the performance of, or ongoing trends in, our primary operating activities or business.

Consolidated balance sheets September 30, 2021 December 31, 2020

(In Thousands)

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Total liabilities and shareholders' equity $ 2,398,314 $ 2,166,666

Total cash and investments were $2.1 billion as of June 30, 2021, compared to $1.9 billion as of December 31, 2020.

Cash and investments at June 30, 2021 included $80.5 million held by NMIH.

Total cash and investments were $2.2 billion as of September 30, 2021, compared to $1.9 billion as of December 31, 2020.

Cash and investments at September 30, 2021 included $79.3 million held by NMIH.

The increase in total cash and investments between the respective measurement dates reflects cash generated from operations, partially offset by a decrease in the unrealized gain position of our fixed income portfolio tied to the prevailing interest rate and credit spread environment.

Premiums receivable was $55.9 million as of June 30, 2021, compared to $49.8 million as December 31, 2020.

Premiums receivable was $58.5 million as of September 30, 2021, compared to $49.8 million as December 31, 2020.

The increase was primarily driven by growth in our monthly premium policies in force, where premiums are generally paid one month in arrears.

Net deferred policy acquisition costs were $62.1 million as of June 30, 2021, compared to $62.2 million as of December 31, 2020.

Net deferred policy acquisition costs were $61.4 million as of September 30, 2021, compared to $62.2 million as of December 31, 2020.

The decrease was primarily driven by the recognition of previously deferred policy acquisition costs taken in connection with in-force portfolio run-off, and was largely offset by the deferral of certain costs associated with the origination of new policies between the respective balance sheet dates.

Prepaid reinsurance premiums were $3.8 million as of June 30, 2021, compared to $6.2 million as of December 31, 2020.

Prepaid reinsurance premiums were $3.0 million as of September 30, 2021, compared to $6.2 million as of December 31, 2020.

Prepaid reinsurance premiums, which represent the unearned premiums on single premium policies ceded under the 2016 QSR Transaction, decreased due to the continued amortization of previously ceded unearned premiums.

Reinsurance recoverable was $19.7 million as of June 30, 2021, compared to $17.6 million as of December 31, 2020.

Reinsurance recoverable was $20.4 million as of September 30, 2021, compared to $17.6 million as of December 31, 2020.

The increase was driven by an increase in ceded losses recoverable associated with our QSR Transactions.

Other assets increased to $70.4 million as of June 30, 2021, compared to $70.0 million as of December 31, 2020.

Other assets included $46.4 million of tax and loss bonds held by the Company at both June 30, 2021 and December 31, 2020.

Other assets increased to $71.3 million as of September 30, 2021, compared to $70.0 million as of December 31, 2020.

Other assets included $46.4 million of tax and loss bonds held by the Company at both September 30, 2021 and December 31, 2020.

See Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 9, Income Taxes.

Unearned premiums were $142.1 million as of June 30, 2021, compared to $118.8 million as of December 31, 2020.

The increase was driven by single premium policy originations during the six months ended June 30, 2021, partially offset by the cancellation of other single premium policies and the amortization of existing unearned premiums through earnings in accordance with the expiration of risk on related single premium policies.

Accounts payable and accrued expenses were $56.8 million as of June 30, 2021, compared to $61.7 million as of December 31, 2020.

The decrease was primarily driven by the payment of an unsettled trade payable related to the purchase of investment securities at year-end 2020 and the settlement of previously accrued compensation during the six months ended June 30, 2021, partially offset by an increase in reinsurance premiums payable.

Reserve for insurance claims and claim expenses was $101.2 million as of June 30, 2021, compared to $90.6 million as of December 31, 2020.

Reserve for insurance claims and claim expenses increased at June 30, 2021, despite a decline in the total size of our default population because of an increase in the average case reserve held against previously defaulted loans and the establishment of initial reserves on newly defaulted loans during the period.

Unearned premiums were $139.6 million as of September 30, 2021, compared to $118.8 million as of December 31, 2020.

The increase was driven by single premium policy originations during the nine months ended September 30, 2021, partially offset by the cancellation of other single premium policies and the amortization of existing unearned premiums through earnings in accordance with the expiration of risk on related single premium policies.

Accounts payable and accrued expenses were $78.7 million as of September 30, 2021, compared to $61.7 million as of December 31, 2020.

The increase was primarily driven by accrued and unpaid interest on the Notes which is payable semi-annually in June and December, reinsurance premiums payable, accrued payroll, and timing of other contractual payments due, partially offset by payment of unsettled trade payable.

Reserve for insurance claims and claim expenses was $104.6 million as of September 30, 2021, compared to $90.6 million as of December 31, 2020.

Reserve for insurance claims and claim expenses increased at September 30, 2021, despite a decline in the total size of our default population because of an increase in the average case reserve held against previously defaulted loans and the establishment of initial reserves on newly defaulted loans during the period.

While we have generally established lower reserves per default for loans that we consider to be impaired in connection with the COVID pandemic, we have increased the initial reserves held for such loans as they have aged in default status.

The increase in the reserves for insurance claims and claim expenses at June 30, 2021 was partially offset by the release of prior year reserves tied to the curing of certain loans that had defaulted prior to the onset of the COVID pandemic.

The increase in the reserves for insurance claims and claim expenses at September 30, 2021 was partially offset by the release of prior year reserves tied to the curing of certain loans that had defaulted prior to the onset of the COVID pandemic.

See " - Insurance Claims and Claim Expenses ," above for further details.

Reinsurance funds withheld, which represents our ceded reinsurance premiums written, less our profit and ceding commission receivables related to the 2016 QSR Transaction was $6.9 million as of June 30, 2021, compared to $8.7 million as of December 31, 2020.

Reinsurance funds withheld, which represents our ceded reinsurance premiums written, less our profit and ceding commission receivables related to the 2016 QSR Transaction was $6.3 million as of September 30, 2021, compared to $8.7 million as of December 31, 2020.

The decrease relates to the continued decline in ceded premiums written on single premium policies, due to the end of the reinsurance coverage period for new business under the 2016 QSR Transaction at December 31, 2017.

See Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 5, Reinsurance ."

Warrant liability was $3.4 million at June 30, 2021, compared to $4.4 million at December 31, 2020.

Warrant liability was $3.0 million at September 30, 2021, compared to $4.4 million at December 31, 2020.

The decrease was driven by the exercise of outstanding warrants, and changes in the price of our common stock and other Black-Scholes model inputs between the respective measurement dates.

For further information regarding the valuation of our warrant liability and its impact on our results of operations and financial position, see Item 1, " Financial Statements - Notes to Condensed Consolidated Financial Statements - Note 3, Fair Value of Financial Instruments.

Net deferred tax liability was $136.3 million at June 30, 2021 compared to $112.6 million at December 31, 2020.

Net deferred tax liability was $151.4 million at September 30, 2021 compared to $112.6 million at December 31, 2020.

The increase was primarily due to an increase in the claimed deductibility of our statutory contingency reserve, partially offset by the change in unrealized gains recorded in other comprehensive income.

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The following table summarizes our consolidated cash flows from operating, investing and financing activities.

Consolidated cash flows For the six months ended June 30,

Consolidated cash flows For the nine months ended September 30,

Net cash provided by (used in):

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Net (decrease) increase in cash and cash equivalents $ (29,677) $ 153,110

Net cash provided by operating activities was $182.5 million for the six months ended June 30, 2021, compared to $127.4 million for the six months ended June 30, 2020.

The increase in cash generated from operating activities year-on-year was primarily driven by growth in premiums written, with further increase tied to a decline in claims paid from period-to-period.

Cash used in investing activities for the six months ended June 30, 2021 and 2020 reflects the purchase of fixed and short-term maturities with cash provided by operating and, as available, financing activities, and the reinvestment of coupon payments, maturities and sale proceeds within our investment portfolio.

Cash used in investing activities for the six months ended June 30, 2020, further reflects the investment of net cash proceeds provided by financing activities.

Cash used in financing activities was $0.7 million for the six months ended June 30, 2021, compared to cash provided by financing activities of $461.3 million for the six months ended June 30, 2020.

Cash used in financing activities during the six months ended June 30, 2021 primarily relates to taxes paid on the net share settlement of equity awards for certain employees.

Cash provided by financing activities for the six months ended June 30, 2020 primarily reflects $220.3 million net cash proceeds raised in connection with our 2020 equity offering and $245.9 million net cash proceeds raised in connection with our 2020 Notes offering.

Net cash provided by operating activities was $281.4 million for the nine months ended September 30, 2021, compared to $215.0 million for the nine months ended September 30, 2020.

The increase in cash generated from operating activities year-on-year was primarily driven by growth in premiums written, with further increase tied to a decline in claims paid, partially offset by an increase in cash interest expense from period-to-period.

Cash used in investing activities for the nine months ended September 30, 2021 and 2020 reflects the purchase of fixed and short-term maturities with cash provided by operating and, as available, financing activities, and the reinvestment of coupon payments, maturities and sale proceeds within our investment portfolio.

Cash used in financing activities was $0.5 million for the nine months ended September 30, 2021, compared to cash provided by financing activities of $459.0 million for the nine months ended September 30, 2020.

Cash used in financing activities during the nine months ended September 30, 2021 primarily relates to taxes paid on the net share settlement of equity awards for certain employees.

Cash provided by financing activities for the nine months ended September 30, 2020 primarily reflects $220.3 million net cash proceeds raised in connection with our 2020 equity offering and $245.9 million net cash proceeds raised in connection with our 2020 Notes offering.

Liquidity and Capital Resources

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Delaware law provides that dividends are only payable out of a corporation's surplus or recent net profits (subject to certain limitations).

As of June 30, 2021, NMIH had $80.5 million of cash and investments.

As of September 30, 2021, NMIH had $79.3 million of cash and investments.

NMIH's principal source of net cash is investment income.

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Re One also has the capacity, under Wisconsin law, to pay $1.6 million of aggregate ordinary dividends to NMIH during the twelve-month period ending December 31, 2021.

In the future, NMIH may benefit from ordinary course dividend capacity available from NMIC as well.

In the future, NMIH may also benefit from ordinary course dividend capacity available from NMIC.

NMIH has entered into tax and expense-sharing agreements with its subsidiaries which have been approved by the Wisconsin OCI, with such approvals subject to change or revocation at any time.

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Under the 2020 Revolving Credit Facility, NMIH is 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, 2021, the applicable commitment fee was 0.35%.

As of September 30, 2021, the applicable commitment fee was 0.35%.

We are subject to certain covenants under the 2020 Revolving Credit Facility (as defined in the Credit Agreement), including a maximum debt-to-total capitalization ratio of 35%, a minimum liquidity requirement, a requirement to maintain 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 as of June 30, 2021.

We were in compliance with all covenants as of September 30, 2021.

NMIC and Re One are subject to certain capital and dividend rules and regulations prescribed by jurisdictions in which they are authorized to operate and the GSEs.

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Under the PMIERs, NMIC must maintain available assets that are equal to or exceed a minimum risk-based required asset amount, subject to a minimum floor of $400 million.

At June 30, 2021, we reported $1,887 million available assets against $1,171 million risk-based required assets for a $716 million of "excess" funding position.

At September 30, 2021, we reported $1,993 million available assets against $1,366 million risk-based required assets, for a $627 million "excess" funding position.

The risk-based required asset amount under PMIERs is determined at an individual policy-level based on the risk characteristics of each insured loan.

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As such, the PMIERs generally imposes a stricter financial requirement than the state RTC standard.

As of June 30, 2021, NMIC's performing primary RIF, net of reinsurance, was approximately $21.3 billion.

As of September 30, 2021, NMIC's performing primary RIF, net of reinsurance, was approximately $23.4 billion.

NMIC ceded 100% of its pool RIF pursuant to the 2016 QSR Transaction.

Based on NMIC's total statutory capital of $1.8 billion (including contingency reserves) as of June 30, 2021, NMIC's RTC ratio was 12:1 Re One had total statutory capital of $37.7 million as of June 30, 2021 and a RTC ratio of 1.9:1.

Based on NMIC's total statutory capital of $1.8 billion (including contingency reserves) as of September 30, 2021, NMIC's RTC ratio was 12.7:1 Re One had total statutory capital of $38.0 million as of September 30, 2021 and a RTC ratio of 2.2:1 .

At June 30, 2021, NMIC had $1.9 billion of cash and investments, including $48 million of cash and equivalents.

At September 30, 2021, NMIC had $2.0 billion of cash and investments, including $81 million of cash and equivalents.

NMIC's cash inflow is generally significantly in excess of its cash outflow in any given period.

During the twelve-month period ended September 30, 2021, NMIC generated $316 million of cash flow from operations and received an additional $140 million of cash flow on the maturity, sale and redemption of securities held in its investment portfolio.

, are of a contractually predetermined amount and due at a contractually predetermined date).

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Our investment portfolio is comprised entirely of fixed maturity instruments.

As of June 30, 2021, the fair value of our investment portfolio was $2.0 billion and we held an additional $68.1 million of cash and equivalents.

Pre-tax book yield on the investment portfolio for the six months ended June 30, 2021 was 2.0%.

As of September 30, 2021, the fair value of our investment portfolio was $2.1 billion and we held an additional $97.3 million of cash and equivalents.

Pre-tax book yield on the investment portfolio for the nine months ended September 30, 2021 was 2.0%.

Book yield is calculated as period-to-date net investment income divided by the average amortized cost of the investment portfolio.

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The following tables present a breakdown of our investment portfolio and cash and cash equivalents by investment type and credit rating:

Percentage of portfolio's fair value June 30, 2021 December 31, 2020

Percentage of portfolio's fair value September 30, 2021 December 31, 2020

Corporate debt securities 65 % 63 %

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Investment portfolio ratings at fair value (1)

June 30, 2021 December 31, 2020

September 30, 2021 December 31, 2020

AAA 10 % 12 %

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Investment Securities - Allowance for credit losses

We did not recognize an allowance for credit loss for any security in the investment portfolio as of June 30, 2021 or December 31, 2020, and we did not record any provision for credit loss for investment securities during the three or six month periods ended June 30, 2021 or June 30, 2020.

As of June 30, 2021, the investment portfolio had gross unrealized losses of $9.0 million, none of which had been in an unrealized loss position for a period of twelve months or longer.

We did not recognize an allowance for credit loss for any security in the investment portfolio as of September 30, 2021 or December 31, 2020, and we did not record any provision for credit loss for investment securities during the three or nine month periods ended September 30, 2021 or September 30, 2020.

As of September 30, 2021, the investment portfolio had gross unrealized losses of $13.3 million, of which $1.3 million had been in an unrealized loss position for a period of twelve months or longer.

As of December 31, 2020, the investment portfolio had gross unrealized losses of $512 thousand, of which $8 thousand had been in an unrealized loss position for a period of twelve months or longer.

The increase in the number of securities in and the aggregate size of the unrealized loss position as of June 30, 2021, was primarily driven by interest rate movements following the purchase date of certain securities.

Based on current facts and circumstances, we believe the unrealized losses as of June 30, 2021 are not indicative of the ultimate collectability of the current amortized cost of the securities.

The increase in the number of securities in and the aggregate size of the unrealized loss position as of September 30, 2021, was primarily driven by interest rate movements following the purchase date of certain securities.

Based on current facts and circumstances, we believe the unrealized losses as of September 30, 2021 are not indicative of the ultimate collectability of the current amortized cost of the securities.

Critical Accounting Estimates

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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 2. Management’s Discussion and Analysis