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Item 1. Financial Statements

2023-08-02 compared with 2023-05-03 · 151 added, 110 removed, 594 unchanged (31% of the section changed)

1 unchanged sentence

INDEX TO FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets as of March 31, 2023 (Unaudited) and December 31, 2022

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three months ended March 31, 2023 and 2022 (Unaudited)

Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended March 31, 2023 and 2022 (Unaudited)

Condensed Consolidated Statements of Cash Flows for the three months ended March 31, 2023 and 2022 (Unaudited)

Condensed Consolidated Balance Sheets as of June 30, 2023 (Unaudited) and December 31, 2022

Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and six months ended June 30, 2023 and 2022 (Unaudited)

Condensed Consolidated Statements of Changes in Shareholders' Equity for the three months ended June 30, 2023 and 2022 (Unaudited)

Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2023 and 2022 (Unaudited)

Notes to Condensed Consolidated Financial Statements (Unaudited) 11

1 unchanged sentence

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

March 31, 2023 December 31, 2022

June 30, 2023 December 31, 2022

Assets (In Thousands, except for share data)

Fixed maturities, available-for-sale, at fair value (amortized cost of $ 2,383,982 and $ 2,352,747 as of March 31, 2023 and December 31, 2022, respectively)

Fixed maturities, available-for-sale, at fair value (amortized cost of $ 2,465,556 and $ 2,352,747 as of June 30, 2023 and December 31, 2022, respectively)

$ 2,233,656 $ 2,099,389

Cash and cash equivalents (including restricted cash of $ 2,197 and $ 2,176 as of March 31, 2023 and December 31, 2022, respectively)

Cash and cash equivalents (including restricted cash of $ 2,222 and $ 2,176 as of June 30, 2023 and December 31, 2022, respectively)

73,319 44,426

19 unchanged sentences

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

86,869,169 shares issued and 83,279,886 shares outstanding as of March 31, 2023 and 86,472,742 shares issued and 83,549,879 shares outstanding as of December 31, 2022 ( 250,000,000 shares authorized)

86,925,030 shares issued and 82,289,763 shares outstanding as of June 30, 2023 and 86,472,742 shares issued and 83,549,879 shares outstanding as of December 31, 2022 ( 250,000,000 shares authorized)

Additional paid-in capital 977,295 972,717

Treasury Stock, at cost:

3,589,283 and 2,922,863 common shares as of March 31, 2023 and December 31, 2022, respectively

4,635,267 and 2,922,863 common shares as of June 30, 2023 and December 31, 2022, respectively

( 97,675 ) ( 56,575 )

6 unchanged sentences

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

For the three months ended March 31,

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

2023 2022 2023 2022

(In Thousands, except for per share data)

1 unchanged sentence

Net investment income 16,518 10,921 31,412 21,120

Net realized investment (losses) gains ( 33 ) 408

Net realized investment gains (losses) — 53 ( 33 ) 461

Other revenues 182 376 346 715

16 unchanged sentences

Net income $ 80,284 $ 75,444 $ 154,742 $ 143,124

Other comprehensive income (loss), net of tax:

Unrealized gains (losses) in accumulated other comprehensive income (loss), net of tax expense (benefit) of $ 8,633 and $( 26,176 ) for the quarters ended March 31, 2023 and 2022, respectively

Other comprehensive (loss) income, net of tax:

Unrealized (losses) gains in accumulated other comprehensive (loss) income, net of tax (benefit) expense of $( 4,120 ) and $( 17,004 ) for the three months ended June 30, 2023 and 2022, and $ 4,513 and $( 43,180 ) for the six months ended June 30, 2023 and 2022, respectively

( 15,499 ) ( 63,967 ) 16,977 ( 162,438 )

Reclassification adjustment for realized losses (gains) included in net income, net of tax (benefit) expense of $( 7 ) and $ 86 for the quarters ended March 31, 2023 and 2022, respectively

Other comprehensive income (loss), net of tax 32,502 ( 98,794 )

Reclassification adjustment for realized (gains) losses included in net income, net of tax expense (benefit) of $ 0 and $ 11 for the three months ended June 30, 2023 and 2022, and $( 7 ) and $ 97 for the six months ended June 30, 2023 and 2022, respectively

— ( 44 ) 26 ( 367 )

Other comprehensive (loss) income, net of tax ( 15,499 ) ( 64,011 ) 17,003 ( 162,805 )

Comprehensive income (loss) $ 64,785 $ 11,433 $ 171,745 $ ( 19,681 )

15 unchanged sentences

Balances, March 31, 2023 83,280 $ 869 $ 973,599 $ ( 71,437 ) $ ( 171,821 ) $ 975,501 $ 1,706,711

Common stock:

class A shares issued under stock plans, net of shares withheld for employee taxes 56 1 20 — — — 21

Repurchase of common stock ( 1,046 ) — — ( 26,238 ) — — ( 26,238 )

Share-based compensation expense — — 3,676 — — — 3,676

Change in unrealized investment gains/losses, net of tax benefit of $ 4,120

— — — — ( 15,499 ) — ( 15,499 )

Net income — — — — — 80,284 80,284

Balances, June 30, 2023 82,290 $ 870 $ 977,295 $ ( 97,675 ) $ ( 187,320 ) $ 1,055,785 $ 1,748,955

See accompanying notes to condensed consolidated financial statements (unaudited).

NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)

Common Stock - Class A Additional

13 unchanged sentences

Balances, March 31, 2022 86,039 $ 863 $ 960,667 $ ( 5,000 ) $ ( 97,309 ) $ 675,821 $ 1,535,042

Common stock:

class A shares issued related to warrant exercises 33 * 624 — — — 624

Common stock:

class A shares issued under stock plans, net of shares withheld for employee taxes 68 1 ( 504 ) — — — ( 503 )

Repurchase of common stock ( 1,439 ) — — ( 25,371 ) — — ( 25,371 )

Share-based compensation expense — — 3,867 — — — 3,867

Change in unrealized investment gains/losses, net of tax benefit of $ 17,015

— — — — ( 64,011 ) — ( 64,011 )

Net income — — — — — 75,444 75,444

Balances, June 30, 2022 84,701 $ 864 $ 964,654 $ ( 30,371 ) $ ( 161,320 ) $ 751,265 $ 1,525,092

* During the three months ended June 30, 2022, we issued 32,659 common shares with a par value of $ 0.01 in connection with the exercise of warrants, which is not identifiable in this schedule due to rounding.

See accompanying notes to condensed consolidated financial statements (unaudited).

1 unchanged sentence

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

For the three months ended March 31,

For the six months ended June 30,

Cash flows from operating activities (In Thousands)

1 unchanged sentence

Adjustments to reconcile net income to net cash provided by operating activities:

Net realized investment losses (gains) 33 ( 408 )

Net realized investment loss (gains) 33 ( 461 )

Gain from change in fair value of warrant liability — ( 1,113 )

10 unchanged sentences

Other assets (1)

( 1,612 ) ( 1,299 )

Unearned premiums ( 17,968 ) ( 3,556 )

16 unchanged sentences

Net cash used in financing activities ( 43,377 ) ( 30,326 )

Net increase in cash, cash equivalents and restricted cash 38,678 54,260

Net increase (decrease) in cash, cash equivalents and restricted cash 28,893 ( 4,248 )

Cash, cash equivalents and restricted cash, beginning of period 44,426 76,646

Cash, cash equivalents and restricted cash, end of period $ 73,319 $ 72,398

Supplemental disclosures of cash flow information

Interest paid $ 14,750 $ 14,750

Income taxes paid 1 —

(1) "Prepaid expenses" have been reclassified as "Other assets" in prior periods.

37 unchanged sentences

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

This standard may be elected and applied prospectively over time from March 12, 2020 through December 31, 2022 as reference rate reform activities occur.

This standard may be elected and applied prospectively over tim e from March 12, 2020 through December 31, 2022 as reference rate reform activities occur.

In December 2022, the FASB issued ASU 2022-06, which extended the sunset date of Topic 848 from December 31, 2022 to December 31, 2024.

10 unchanged sentences

Cost Gross Unrealized Fair

As of March 31, 2023 (In Thousands)

As of June 30, 2023 (In Thousands)

Treasury securities and obligations of U.S.

16 unchanged sentences

Total investments $ 2,352,747 $ 1,334 $ ( 254,692 ) $ 2,099,389

We did not own any mortgage-backed securities in our asset-backed securities portfolio at March 31, 2023 or December 31, 2022.

We did not own any mortgage-backed securities in our asset-backed securities portfolio at June 30, 2023 or December 31, 2022.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of March 31, 2023 and December 31, 2022:

March 31, 2023 December 31, 2022

The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of June 30, 2023 and December 31, 2022:

June 30, 2023 December 31, 2022

Financial 38 % 38 %

5 unchanged sentences

Total 100 % 100 %

As of March 31, 2023 and December 31, 2022, approximately $ 5.5 million and $ 5.4 million, respectively, of our cash and investments were held in the form of U.S.

As of June 30, 2023 and December 31, 2022, approximately $ 5.3 million and $ 5.4 million, respectively, of our cash and investments were held in the form of U.S.

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

Scheduled Maturities

The amortized cost and fair value of available-for-sale securities as of March 31, 2023 and December 31, 2022, by contractual maturity, are shown below.

The amortized cost and fair value of available-for-sale securities as of June 30, 2023 and December 31, 2022, by contractual maturity, are shown below.

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

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

As of March 31, 2023 Amortized

As of June 30, 2023 Amortized

(In Thousands)

14 unchanged sentences

Aging of Unrealized Losses

As of March 31, 2023, the investment portfolio had gross unrealized losses of $ 215.8 million, of which $ 209.2 million were associated with securities that had been in an unrealized loss position for a period of twelve months or longer.

As of June 30, 2023, the investment portfolio had gross unrealized losses of $ 234.6 million, of which $ 224.9 million were associated with securities that had been in an unrealized loss position for a period of twelve months or longer.

As of December 31, 2022, the investment portfolio had gross unrealized losses of $ 254.7 million, of which $ 218.5 million were associated with securities that had been in an unrealized loss position for a period of twelve months or longer.

4 unchanged sentences

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

As of March 31, 2023 ($ In Thousands)

As of June 30, 2023 ($ In Thousands)

Treasury securities and obligations of U.S.

16 unchanged sentences

Allowance for credit losses

As of March 31, 2023 and December 31, 2022, we did not recognize an allowance for credit loss for any security in the investment portfolio and we did not record any provision for credit loss for investment securities during the three months ended March 31, 2023 or 2022.

The decrease in the number of securities in and the aggregate size of the unrealized loss position as of March 31, 2023, was driven by fluctuations in interest rates and, to a lesser extent, movements in credit spreads since December 31, 2022.

We evaluated the securities in an unrealized loss position as of March 31, 2023, assessing their credit ratings as well as any adverse conditions specifically related to the security.

Based upon our estimate of the amount and timing of cash flows to be collected over the remaining life of each instrument, we believe the unrealized losses as of March 31, 2023 are not indicative of the ultimate collectability of the current amortized cost of the securities.

As of June 30, 2023 and December 31, 2022, we did not recognize an allowance for credit loss for any security in the investment portfolio and we did not record any provision for credit loss for investment securities during the three or six month periods ended June 30, 2023 or June 30, 2022.

We evaluated the securities in an unrealized loss position as of June 30, 2023, assessing their credit ratings as well as any adverse conditions specifically related to the security.

Based upon our estimate of the amount and timing of cash flows to be collected over the remaining life of each instrument, we believe the unrealized losses as of June 30, 2023 are not indicative of the ultimate collectability of the current amortized cost of the securities.

Rather, the unrealized losses on securities held as of June 30, 2023 were primarily driven by fluctuations in interest rates, and to a lesser extent, movements in credit spreads following the purchase of those securities.

Net Investment Income

The following table presents the components of net investment income:

For the three months ended March 31,

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

2023 2022 2023 2022

(In Thousands)

4 unchanged sentences

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

For the three months ended March 31,

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

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

2023 2022 2023 2022

(In Thousands)

1 unchanged sentence

Gross realized investment losses — ( 4 ) ( 33 ) ( 5 )

Net realized investment (losses) gains $ ( 33 ) $ 408

Net realized investment gains (losses) $ — $ 53 $ ( 33 ) $ 461

Fair Value of Financial Instruments

36 unchanged sentences

(Level 3) Fair Value

As of March 31, 2023 (In Thousands)

As of June 30, 2023 (In Thousands)

Treasury securities and obligations of U.S.

21 unchanged sentences

Total assets $ 298,439 $ 1,845,376 $ — $ 2,143,815

There were no transfers between Level 2 and Level 3 of the fair value hierarchy during the three months ended March 31, 2023, or the year ended December 31, 2022.

There were no transfers between Level 2 and Level 3 of the fair value hierarchy during the six months ended June 30, 2023, or the year ended December 31, 2022.

Financial Instruments not Measured at Fair Value

On June 19, 2020, we issued $ 400 million aggregate principal amount of senior secured notes that mature on June 1, 2025 (the Notes) and used a portion of the proceeds from the Notes offering to repay the outstanding amount due under our $ 150 million term loan (2018 Term Loan).

At March 31, 2023, the Notes were carried at a cost of $ 396.4 million, net of unamortized debt issuance costs of $ 3.6 million, and had a fair value of $ 401.9 million as assessed under our Level 2 hierarchy.

At June 30, 2023, the Notes were carried at a cost of $ 396.8 million, net of unamortized debt issuance costs of $ 3.2 million, and had a fair value of $ 405.6 million as assessed under our Level 2 hierarchy.

At December 31, 2022, the Notes were carried at a cost of $ 396.1 million, net of unamortized debt issuance costs of $ 3.9 million, and had a fair value of $ 405.9 million.

Senior Secured Notes

At March 31, 2023, we had $ 400 million aggregate principal amount of senior secured notes outstanding.

At June 30, 2023, we had $ 400 million aggregate principal amount of senior secured notes outstanding.

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

10 unchanged sentences

The effective interest rate on the Notes is 7.825 %.

At March 31, 2023 and December 31, 2022, approximately $ 3.6 million and $ 3.9 million, respectively, of unamortized debt issuance costs remained.

At March 31, 2023 and December 31, 2022, $ 9.8 million and $ 2.5 million, respectively, of accrued and unpaid interest on the Notes was included in "Accounts Payable and Accrued Expenses" on the condensed consolidated balance sheets.

At June 30, 2023 and December 31, 2022, approximately $ 3.2 million and $ 3.9 million, respectively, of unamortized debt issuance costs remained.

At June 30, 2023 and December 31, 2022, $ 2.5 million of accrued and unpaid interest on the Notes was included in "Accounts Payable and Accrued Expenses" on the condensed consolidated balance sheets.

2021 Revolving Credit Facility

On November 29, 2021, we amended our $ 110 million senior secured revolving credit facility (the 2020 Revolving Credit Facility and as amended, the 2021 Revolving Credit Facility), expanding the lender group, increasing the revolving capacity to $ 250 million, and extending the maturity from February 22, 2023 to the earlier of (x) November 29, 2025, or (y) if any existing senior secured notes remain outstanding on such date, February 28, 2025.

Borrowings under the 2021 Revolving Credit Facility may be used for general corporate purposes, including to support the growth of our new business production and operations, and accrue interest at a variable rate equal to, at our discretion, (i) a Base Rate (as defined in the 2021 Revolving Credit Facility) subject to a floor of 1.00 % per annum) plus a margin of 0.375 % to 1.875 % per annum or (ii) the Adjusted Term Secured Overnight Financing Rate (SOFR, as defined in the 2021 Revolving Credit Facility) plus a margin of 1.375 % to 2.875 % per annum, with the margin in each of (i) or (ii) based on our applicable corporate credit rating at the time.

As of March 31, 2023 and December 31, 2022, no amounts were drawn under the 2021 Revolving Credit Facility.

Borrowings under the 2021 Revolving Credit Facility may be used for general corporate purposes, including to support the growth of our new business production and operations, and accrue interest at a variable rate equal to, at our discretion, (i) a Base Rate (as defined in the 2021 Revolving Credit Facility) subject to a floor of 1.00 % per annum) plus a margin of 0.375 % to 1.875 % per annum, or (ii) the Adjusted Term SOFR (as defined in the 2021 Revolving Credit Facility) plus a margin of 1.375 % to 2.875 % per annum, with the margin in each of (i) or (ii) based on our applicable corporate credit rating at the time.

As of June 30, 2023 and December 31, 2022, no amounts were drawn under the 2021 Revolving Credit Facility.

Under the 2021 Revolving Credit Facility, we are required to pay a quarterly commitment fee on the average daily undrawn amount of 0.175 % to 0.525 %, based on the applicable corporate credit rating at the time.

As of March 31, 2023, the applicable commitment fee was 0.30 %.

For the three months ended March 31, 2023, we recorded $ 0.2 million of commitment fees in interest expense.

As of June 30, 2023, the applicable commitment fee was 0.30 %.

For the three and six months ended June 30, 2023, we recorded $ 0.2 million and $ 0.4 million of commitment fees in interest expense, respectively.

We incurred debt issuance costs of $ 1.1 million in connection with the 2021 Revolving Credit Facility and had $ 0.6 million of unamortized debt issuance costs associated with the 2020 Revolving Credit Facility remaining at the time of its amendment and replacement.

The combined unamortized debt issuance will be amortized through interest expense on a straight-line basis over the contractual life of the 2021 Revolving Credit Facility.

At March 31, 2023 and December 31, 2022, remaining unamortized deferred debt issuance costs were $ 1.1 million and $ 1.2 million, respectively.

Combined unamortized debt issuance costs are amortized through interest expense on a straight-line basis over the contractual life of the 2021 Revolving Credit Facility.

At June 30, 2023 and December 31, 2022, remaining unamortized deferred debt issuance costs were $ 1.0 million and $ 1.2 million, respectively.

We are subject to certain covenants under the 2021 Revolving Credit Facility, including, but not limited to, the following:

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

We were in compliance with all covenants at March 31, 2023.

We were in compliance with all covenants at June 30, 2023.

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

3 unchanged sentences

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

For the three months ended

March 31, 2023 March 31, 2022

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

2023 2022 2023 2022

(In Thousands)

16 unchanged sentences

NMIC makes risk premium payments to the Oaktown Re Vehicles for the applicable outstanding reinsurance coverage amount and pays an additional amount for anticipated operating expenses (capped at $ 250 thousand per year).

NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $ 9.1 million and $ 10.9 million during the three months ended March 31, 2023 and 2022, respectively.

NMIC ceded aggregate premiums to the Oaktown Re Vehicles of $ 8.8 million and $ 17.9 million during the three and six months ended June 30, 2023, respectively, and $ 10.1 million and $ 21.1 million during the three and six months ended June 30, 2022, respectively.

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

NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the three months ended March 31, 2023 and 2022, as the aggregate first layer risk retention for each applicable agreement was not exhausted during such periods.

NMIC did not cede any incurred losses on covered policies to the Oaktown Re Vehicles during the three and six months ended June 30, 2023 and 2022, as the aggregate first layer risk retention for each applicable agreement was not exhausted during such periods.

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

8 unchanged sentences

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

The outstanding reinsurance coverage amounts stop amortizing, and the distribution of collateral assets to ILN Transaction noteholders 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).

As of March 31, 2023, the 2021-2 ILN Transaction was deemed to be in Lock

The outstanding reinsurance coverage amounts stop amortizing, and the distribution of collateral assets to ILN Transaction noteholders and amortization of

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Out in connection with the initial build of its target credit enhancement level and will remain in Lock Out until such target credit enhancement level is achieved.

Effective February 28, 2023, a previously triggered Lock-Out Event for the 2018 ILN Transaction was deemed to have cleared and amortization of the associated reinsurance coverage, and distribution of collateral assets and amortization of the associated insurance-linked notes resumed.

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).

NMIC holds optional termination rights under each ILN Transaction, including, among others, an optional call feature which provides NMIC the discretion to terminate the transaction on or after a prescribed date, and a clean-up call if the outstanding reinsurance coverage amount amortizes to 10 % or less of the reinsurance coverage amount at inception or if NMIC reasonably determines that changes to GSE or rating agency asset requirements would cause a material and adverse effect on the capital treatment afforded to NMIC under a given agreement.

1 unchanged sentence

The following table presents the inception date, covered production period, initial and current reinsurance coverage amount, and initial and current first layer retained aggregate loss under each outstanding ILN Transaction.

Current amounts are presented as of March 31, 2023.

Current amounts are presented as of June 30, 2023.

( $ values in thousands)

6 unchanged sentences

367,238 257,809 163,708 163,520

2021-2 ILN Transaction (5)

October 26, 2021 4/1/2021 – 9/30/2021 (4)

2021-2 ILN Transaction October 26, 2021 4/1/2021 – 9/30/2021 (4)

363,596 351,215 146,229 146,112

3 unchanged sentences

(4) Approximately 2 % of the production covered by the 2021-2 ILN Transaction has coverage reporting dates between July 1, 2019 and March 31, 2021.

(5) As of March 31, 2023, the current reinsurance coverage amount on the 2021-2 ILN Transactions is equal to the initial reinsurance coverage amount, as the reinsurance coverage provided by Oaktown Re VII Ltd.

will not begin to amortize until its target credit enhancement level is reached.

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

"Cash and cash equivalents" on our condensed consolidated balance sheets includes restricted amounts of $ 2.2 million as of both March 31, 2023 and December 31, 2022.

"Cash and cash equivalents" on our condensed consolidated balance sheets includes restricted amounts of $ 2.2 million as of June 30, 2023 and December 31, 2022.

The restricted balances required under these transactions will decline over time as the outstanding principal balance of the respective insurance-linked notes are amortized.

3 unchanged sentences

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

The reinsurance coverage amount of each XOL Transaction is set to approximate the PMIERs minimum required assets of its reference pool and decreases from the inception of each respective agreement over a ten-year period in the event the PMIERs minimum required assets of the pool declines.

The reinsurance coverage amount of each XOL Transaction is set to approximate the PMIERs minimum required assets of its reference pool and decreases from the inception of each respective agreement (except 2023-1 XOL, which decreases from the end of the covered production period) over a ten-year period in the event the PMIERs minimum required assets of the pool declines.

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

Under the terms of the XOL Transactions, NMIC makes risk premium payments to its third-party reinsurance providers for the outstanding reinsurance coverage amount and ceded aggregate premiums of $ 7.7 million and $ 14.9 million during the three and six months ended June 30, 2023, respectively, and $ 2.9 million during both the three and six months ended June 30, 2022.

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

NMIC did not cede any incurred losses on covered policies under the XOL Transactions during the three months ended March 31, 2023, as the aggregate first layer risk retention for each agreement was not exhausted during the period.

NMIC holds optional termination rights which provide it the discretion to terminate each XOL Transaction on or after a

NMIC did not cede any incurred losses on covered policies under the XOL Transactions during the three and six months ended June 30, 2023, as the aggregate first layer risk retention for each agreement was not exhausted during the period.

NMIC holds optional termination rights which provide it the discretion to terminate each XOL Transaction on or after a specified date.

NMIC may also elect to terminate the XOL Transactions at any point if the outstanding reinsurance coverage

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

specified date.

NMIC may also elect to terminate the XOL Transactions at any point if the outstanding reinsurance coverage amount amortizes to 10% or less of the reinsurance coverage amount provided at inception, or if it determines that it will no longer be able to take full PMIERs asset credit for the coverage.

amount amortizes to 10% or less of the reinsurance coverage amount provided at inception, or if it determines that it will no longer be able to take full PMIERs asset credit for the coverage.

Additionally, under the terms of the treaties, NMIC may selectively terminate its engagement with individual reinsurers under certain circumstances.

4 unchanged sentences

Current amounts are presented as of March 31, 2023.

Current amounts are presented as of June 30, 2023.

($ values in thousands) Inception Date Covered Production Initial Reinsurance Coverage

10 unchanged sentences

(3) Approximately 1 % of the production covered by the 2022-2 XOL Transaction has coverage reporting dates between January 4, 2021 and March 31, 2022.

(4) The initial reinsurance coverage, current reinsurance coverage, initial first layer retained loss and current first layer retained loss for the 2023-1 XOL Transaction will increase as incremental covered production is ceded under the transaction through June 30, 2023.

(4) The 2023-1 XOL Transaction provides coverage for production generated between October 1, 2022 and June 30, 2023.

The current reinsurance coverage and current first layer retained loss will decrease in future periods to the extent the PMIERs minimum required assets of the covered pool declines.

Quota share reinsurance

42 unchanged sentences

The following table shows amounts related to the QSR Transactions:

As of and for the three months ended

March 31, 2023 March 31, 2022

As of and for the three months ended As of and for the six months ended

June 30, 2023 June 30, 2022 June 30, 2023 June 30, 2022

(In Thousands)

12 unchanged sentences

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

The reinsurance recoverable on loss reserves related to the 2016 QSR Transaction was $ 2.4 million and $ 2.6 million as of March 31, 2023 and December 31, 2022, respectively.

The reinsurance recoverable on loss reserves related to the 2016 QSR Transaction was $ 1.9 million and $ 2.6 million as of June 30, 2023 and December 31, 2022, respectively.

In accordance with the terms of the 2018, 2020, 2021, 2022 and 2023 QSR and 2022 Seasoned QSR Transactions, cash payments for ceded premiums earned are settled on a quarterly basis, offset by amounts due to NMIC for ceding and profit commissions.

1 unchanged sentence

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

The aggregate reinsurance recoverable on loss reserves related to the 2018, 2020, 2021, 2022, 2023 QSR and 2022 Seasoned QSR Transactions was $ 21.1 million and $ 19.0 million as of March 31, 2023 and December 31, 2022, respectively.

The aggregate reinsurance recoverable on loss reserves related to the 2018, 2020, 2021, 2022, 2023 QSR and 2022 Seasoned QSR Transactions was $ 22.1 million and $ 19.0 million as of June 30, 2023 and December 31, 2022, respectively.

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

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

The allowance for credit loss established on our reinsurance recoverable was deemed immaterial at March 31, 2023 and December 31, 2022.

The allowance for credit loss established on our reinsurance recoverable was deemed immaterial at June 30, 2023 and December 31, 2022.

Reserves for Insurance Claims and Claim Expenses

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

As of March 31, 2023, we had 4,475 primary loans in default and held gross reserves for insurance claims and claim expenses of $ 108.2 million.

During the three months ended March 31, 2023, we paid 21 claims totaling $ 0.4 million, including 20 claims covered under the QSR Transactions representing $ 0.1 million of ceded claims and claim expenses.

As of June 30, 2023, we had 4,349 primary loans in default and held gross reserves for insurance claims and claim expenses of $ 110.4 million.

During the six months ended June 30, 2023, we paid 67 claims totaling $ 1.7 million, including 65 claims covered under the QSR Transactions representing $ 0.3 million of ceded claims and claim expenses.

NMI HOLDINGS, INC.

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

At March 31, 2023, 41 loans in the pool were in default.

At June 30, 2023, 37 loans in the pool were in default.

These 37 loans represented approximately $ 2.8 million of RIF.

Due to the size of the remaining deductible, our expectation that a limited number of loans in default will progress to a claim and the expected severity on such claim submissions (all loans in the pool had loan-to-value (LTV) ratios under 80 % at origination), we did not establish any case or IBNR reserves for pool risk at March 31, 2023.

In connection with the settlement of pool claims, we applied $ 1.0 million to the pool deductible through March 31, 2023.

At March 31, 2023, the remaining pool deductible was $ 9.4 million.

In connection with the settlement of pool claims, we applied $ 1.0 million to the pool deductible through June 30, 2023.

At June 30, 2023, the remaining pool deductible was $ 9.4 million.

We have not paid any pool claims to date.

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

We had 4,475 loans in default in our primary insured portfolio as of March 31, 2023, which represented a 0.75 % default rate against 600,294 total policies in-force and 4,449 loans in default in our primary portfolio as of December 31, 2022, which represented a 0.75 % default rate against 594,142 total policies in-force.

We had 4,349 loans in default in our primary insured portfolio as of June 30, 2023, which represented a 0.71 % default rate against 611,441 total policies in-force and 4,449 loans in default in our primary portfolio as of December 31, 2022, which represented a 0.75 % default rate against 594,142 total policies in-force.

The size of the reserve we establish for each defaulted loan (and by extension our aggregate reserve for claims and claim expenses) reflects our best estimate of the future claim payment to be made for each individual loan in default.

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

For the three months ended March 31,

For the six months ended June 30,

(In Thousands)

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

Amounts are presented net of reinsurance and included $ 22.3 million attributed to net case reserves and $ 4.9 million attributed to net IBNR reserves for the three months ended March 31, 2023 and $ 5.2 million attributed to net case reserves and $ 4.7 million attributed to net IBNR reserves for the three months ended March 31, 2022.

Amounts are presented net of reinsurance and included $ 39.1 million attributed to net case reserves and $ 5.0 million attributed to net IBNR reserves for the six months ended June 30, 2023 and $ 14.0 million attributed to net case reserves and $ 4.5 million attributed to net IBNR reserves for the six months ended June 30, 2022.

(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 $ 16.2 million attributed to net case reserves and $ 4.5 million attributed to net IBNR reserves for the three months ended March 31, 2023 and $ 5.8 million attributed to net case reserves and $ 4.7 million attributed to net IBNR reserves for the three months ended March 31, 2022.

Amounts are presented net of reinsurance and included $ 30.3 million attributed to net case reserves and $ 4.5 million attributed to net IBNR reserves for the six months ended June 30, 2023 and $ 17.0 million attributed to net case reserves and $ 4.7 million attributed to net IBNR reserves for the six months ended June 30, 2022.

NMI HOLDINGS, INC.

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

The amount of claims incurred relating to current year defaults increased during six months ended June 30, 2023, compared to the same period in the prior year, primarily driven by the establishment of initial reserves on newly defaulted loans and the increase in the average case reserve held against previously defaulted loans that have aged in their delinquency status.

Our provision for claims and claim expenses during both six months ended June 30, 2023 and 2022 benefited from favorable development on prior year defaults.

We recognized $ 35.3 million and $ 22.4 million of favorable prior year development during the six months ended June 30, 2023 and 2022, respectively, primarily due to cure activity and ongoing analysis of recent loss development trends.

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 $ 72.7 million related to prior year defaults remained as of March 31, 2023.

Gross reserves of $ 53.1 million related to prior year defaults remained as of June 30, 2023.

Earnings per Share (EPS)

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

For the three months ended March 31,

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

2023 2022 2023 2022

(In Thousands, except for per share data)

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federal and various state income tax returns, filed by NMIH on behalf of itself and its subsidiaries.

Our effective tax rate on our pre-tax income was 22.6 % and 22.0 % for the three months ended March 31, 2023 and 2022, respectively.

Our effective tax rate on our pre-tax income was 22.8 % and 22.7 % for the three and six months ended June 30, 2023, respectively, compared to 22.4 % and 22.2 % for the three and six months ended June 30, 2022, respectively.

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

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Such items are treated on a discrete basis in the reporting period in which they occur.

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

As a result, our interim provision for income taxes for the three months ended March 31, 2023 primarily represents a change in our net deferred tax liability.

As of March 31, 2023 and December 31, 2022, we held $ 154.4 million of tax and loss bonds in "Prepaid federal income taxes" on our condensed consolidated balance sheets.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

As a result, our interim provision for income taxes for the three and six months ended June 30, 2023 primarily represents a change in our net deferred tax liability.

As of June 30, 2023 and December 31, 2022, we held $ 154.4 million of tax and loss bonds in "Prepaid federal income taxes" on our condensed consolidated balance sheets.

Stockholders' Equity

On February 10, 2022, our Board of Directors approved a $ 125 million share repurchase program (excluding associated costs and applicable taxes) effective through December 31, 2023.

The authorization provides us the flexibility to repurchase stock from time to time in the open market or in privately negotiated transactions, based on market and business conditions, stock price and other factors, pursuant to a trading plan under Rule 10b-18 and Rule 10b5-1 of the Exchange Act.

During the three months ended March 31, 2023, we repurchased 0.7 million shares at an average price of $ 22.19 (excluding associated costs and applicable taxes).

The authorization provides us the flexibility, based on market and business conditions, stock price and other factors, to repurchase stock from time to time through open market purchases, privately negotiated transactions, or other means, including pursuant to Rule 10b5-1 trading plans.

During the six months ended June 30, 2023, we repurchased 1.7 million shares at an average price of $ 23.80 per share (excluding associated costs and applicable taxes).

During the year ended December 31, 2022, we repurchased 2.9 million shares at an average price of $ 19.34 per share (excluding associated costs).

As of March 31, 2023, $ 53.7 million of repurchase authority remained under the program.

We record a liability when we believe that it is probable that a loss has been incurred, and the amount can be reasonably estimated.

If we determine that a loss is reasonably possible, we disclose an estimate of the possible loss or range of loss.

If no estimate can be made, we disclose the matter as such.

We evaluate litigation and other legal developments that could affect the amount of liability that may need to be accrued, related reasonably possible losses disclosed and make adjustments as appropriate.

Significant judgment is required to determine both the likelihood and the estimated amount of losses related to such matters.

As of June 30, 2023, $ 27.7 million of repurchase authority remained under the program.

We record a litigation liability when we determine that it is probable a litigation loss will be incurred and the amount of such anticipated loss can be reasonably estimated.

In the event we determine that a litigation loss is reasonably possible (though not probable), we disclose an estimate of the possible loss if such estimate can be reasonably established, or disclose the matter with no estimate if such estimate cannot be reasonably made.

We evaluate litigation and other legal developments that could affect our accrual for probable losses or our estimated disclosure of possible losses, and make ongoing adjustments to our accruals and disclosures as appropriate.

Significant judgment is required to determine both the likelihood and the estimated amount of potential losses related to such matters.

We are currently monitoring litigation regarding the refund of certain mortgage insurance premiums as it pertains to provisions of the Homeowners Protection Act and have been named as a defendant in one such case.

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

Due to the nature of our insurance policies (a necessary precondition for access to mortgage credit for covered borrowers) and the short duration of the related receivables, we do not typically experience credit losses against our premium receivables and the allowance for credit loss established on premium receivable was deemed immaterial at March 31, 2023 and December 31, 2022.

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

We established a $ 2.6 million and $ 2.3 million reserve for premium write-offs at March 31, 2023 and December 31, 2022, respectively.

We established a $ 2.7 million and $ 2.3 million reserve for premium write-offs at June 30, 2023 and December 31, 2022, respectively.

Regulatory Information

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

NMIC and Re One generated combined statutory net income of $ 21.8 million and $ 18.6 million for the three months ended March 31, 2023 and 2022, respectively.

NMIC and Re One generated combined statutory net income of $ 28.1 million and $ 49.9 million for the three and six months ended June 30, 2023, respectively, compared to $ 25.6 million and $ 44.2 million for the three and six months ended June 30, 2022, respectively.

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

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

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

NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

The following table presents NMIC's statutory surplus, contingency reserve, statutory capital and risk-to-capital (RTC) ratio as of March 31, 2023 and December 31, 2022.

March 31, 2023 December 31, 2022

The following table presents NMIC's statutory surplus, contingency reserve, statutory capital and risk-to-capital (RTC) ratio as of June 30, 2023 and December 31, 2022.

June 30, 2023 December 31, 2022

(In Thousands)

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

Re One had $ 5.6 million of statutory capital at March 31, 2023 and December 31, 2022.

Re One had $ 5.6 million of statutory capital at June 30, 2023 and December 31, 2022.

NMIH is not subject to any limitations on its ability to pay dividends except those generally applicable to corporations that are incorporated in Delaware.

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NMIC and Re One are subject to certain rules and regulations prescribed by jurisdictions in which they are authorized to operate and the GSEs that may restrict their ability to pay dividends to NMIH.

NMIC has the capacity to pay $ 98.0 million of aggregate ordinary dividends to NMIH during the twelve-month period ending December 31, 2023.

NMIC has the capacity to pay $ 98.0 million of aggregate ordinary dividends to NMIH during the twelve-month period ending December 31, 2023, and on May 12, 2023, NMIC paid a $ 98.0 million ordinary course dividend to NMIH.

Subsequent Events

2018 ILN Transaction termination

Effective July 25, 2023, NMIC exercised its optional call to terminate the 2018 ILN Transaction.

In connection with the termination of the transaction, NMIC’s excess of loss reinsurance agreement with Oaktown Re II Ltd.

was commuted and the insurance-linked notes issued by Oaktown Re II Ltd.

were redeemed in full with a distribution of remaining collateral assets.

Excess-of-loss reinsurance agreement

Effective July 1, 2023, NMIC entered into a reinsurance agreement with a broad panel of highly rated reinsurers that provides for up to $ 95.8 million of aggregate excess-of-loss reinsurance coverage for delinquencies that emerge on mortgage insurance policies written between July 1, 2023 and December 31, 2023 (2023-2 XOL Transaction).

For the reinsurance coverage period, NMIC will retain a first layer of aggregate losses on covered policies and the reinsurers then provide second layer loss protection up to $ 95.8 million.

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

Share repurchase program approval and extension of existing program

On July 31, 2023, our Board of Directors authorized a new $ 200 million share repurchase program (excluding associated costs and applicable taxes) effective through December 31, 2025.

The authorization provides us the flexibility, based on market and business conditions, stock price and other factors, to repurchase stock from time to time through open market repurchases, privately negotiated transactions, or other means, including pursuant to Rule 10b5-1 trading plans.

Concurrent with the new authorization, our Board of Directors also approved an extension of our existing $ 125 million share repurchase program through December 31, 2025 to align its remaining tenor with that of the $ 200 million program.

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

What changed 10-Q

Item 1. Financial Statements