10-Q 1 nmih-20220930.htm 10-Q nmih-20220930
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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

FORM 10-Q
(Mark One)
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period endedSeptember 30, 2022
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ______ to ______
 
Commission file number 001-36174
NMI Holdings, Inc.
(Exact name of registrant as specified in its charter)
Delaware 45-4914248
(State or other jurisdiction of incorporation or organization)(I.R.S. Employer Identification No.)
2100 Powell StreetEmeryville,CA 94608
(Address of principal executive offices)(Zip Code)

(855) 530-6642
(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Title of each classTrading Symbol(s)Name of each exchange on which registered
Class A Common Stock, par value $0.01NMIHNasdaq
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
Yes No
Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).
Yes No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, a smaller reporting company, or an emerging growth company. See the definitions of "large accelerated filer," "accelerated filer," "smaller reporting company," and "emerging growth company" in Rule 12b-2 of the Exchange Act.
Large accelerated filerAccelerated filer
Non-accelerated filerSmaller reporting company
Emerging growth company
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
Yes No
The number of shares of common stock, $0.01 par value per share, of the registrant outstanding on October 28, 2022 was 83,581,031 shares.
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CAUTIONARY NOTE REGARDING FORWARD-LOOKING STATEMENTS
    This report contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (Securities Act), Section 21E of the Securities Exchange Act of 1934, as amended (Exchange Act), and the U.S. Private Securities Litigation Reform Act of 1995. Any statements about our expectations, outlook, beliefs, plans, predictions, forecasts, objectives, assumptions or future events or performance are not historical facts and may be forward-looking. These statements are often, but not always, made through the use of words or phrases such as "anticipate," "believe," "can," "could," "may," "predict," "assume," "potential," "should," "will," "estimate," "perceive," "plan," "project," "continuing," "ongoing," "expect," "intend" or words of similar meaning and include, but are not limited to, statements regarding the outlook for our future business and financial performance. All forward-looking statements are necessarily only estimates of future results, and actual results may differ materially from expectations. You are, therefore, cautioned not to place undue reliance on such statements which should be read in conjunction with the other cautionary statements that are included elsewhere in this report. Further, any forward-looking statement speaks only as of the date on which it is made and we undertake no obligation to update or revise any forward-looking statement to reflect events or circumstances after the date on which the statement is made or to reflect the occurrence of unanticipated events. We have based these forward-looking statements on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, operating results, business strategy and financial needs. There are important factors that could cause our actual results, level of activity, performance or achievements to differ materially from the results, level of activity, performance or achievements expressed or implied by the forward-looking statements including, but not limited to:
uncertainty relating to the coronavirus (COVID-19) pandemic and its variants or the measures taken by governmental authorities and other third-parties to contain the spread of COVID-19, including their impact on the global economy, the U.S. housing, real estate, housing finance and mortgage insurance markets, and our business, operations and personnel;
changes in the charters, business practices, policy or priorities of Fannie Mae and Freddie Mac (collectively, the GSEs), which may include decisions that have the impact of decreasing or discontinuing the use of mortgage insurance as credit enhancement generally, or with first time homebuyers or on very high loan-to-value mortgages; or changes in the direction of housing policy objectives of the Federal Housing Finance Agency (FHFA), such as the FHFA's priority to increase the accessibility to and affordability of homeownership for low-and-moderate income borrowers and underrepresented communities;
our ability to remain an eligible mortgage insurer under the private mortgage insurer eligibility requirements (PMIERs) and other requirements imposed by the GSEs, which they may change at any time;
retention of our existing certificates of authority in each state and the District of Columbia (D.C.) and our ability to remain a mortgage insurer in good standing in each state and D.C.;
our future profitability, liquidity and capital resources;
actions of existing competitors, including other private mortgage insurers and government mortgage insurers such as the Federal Housing Administration (FHA), the U.S. Department of Agriculture's Rural Housing Service (USDA) and the U.S. Department of Veterans Affairs (VA) (collectively, government MIs), and potential market entry by new competitors or consolidation of existing competitors;
developments in the world's financial, capital and credit markets and our access to such markets, including reinsurance;
adoption of new or changes to existing laws, rules and regulations that impact our business or financial condition directly or the mortgage insurance industry generally or their enforcement and implementation by regulators, including the implementation of the final rules defining and/or concerning "Qualified Mortgage" and "Qualified Residential Mortgage";
U.S. federal tax reform and other potential changes in tax law and their impact on us and our operations;
legislative or regulatory changes to the GSEs' role in the secondary mortgage market or other changes that could affect the residential mortgage industry generally or mortgage insurance industry in particular;
3


potential legal and regulatory claims, investigations, actions, audits or inquiries that could result in adverse judgements, settlements, fines or other reliefs that could require significant expenditures or have other negative effects on our business;
changes in general economic, market and political conditions and policies (including rising interest rates and inflation) and investment results or other conditions that affect the housing market or the markets for home mortgages or mortgage insurance, including the risks related to geopolitical instability, an economic downturn (including any decline in home prices) or recession, and their impacts on our business, operations and personnel;

our ability to successfully execute and implement our capital plans, including our ability to access the capital, credit and reinsurance markets and to enter into, and receive approval of, reinsurance arrangements on terms and conditions that are acceptable to us, the GSEs and our regulators;
lenders, the GSEs, or other market participants seeking alternatives to private mortgage insurance;
our ability to implement our business strategy, including our ability to write mortgage insurance on high quality low down payment residential mortgage loans, implement successfully and on a timely basis, complex infrastructure, systems, procedures, and internal controls to support our business and regulatory and reporting requirements of the insurance industry;
our ability to attract and retain a diverse customer base, including the largest mortgage originators;
failure of risk management or pricing or investment strategies;
decrease in the length of time our insurance policies are in force;
emergence of unexpected claim and coverage issues, including claims exceeding our reserves or amounts we had expected to experience;
potential adverse impacts arising from natural disasters (including those that may be caused or exacerbated by climate change), including, with respect to affected areas, a decline in new business, adverse effects on home prices, and an increase in notices of default on insured mortgages;
potential adverse impacts arising from the occurrence of any man-made disasters or public health emergencies, including pandemics;
the inability of our counter-parties, including third-party reinsurers, to meet their obligations to us;
failure to maintain, improve and continue to develop necessary information technology (IT) systems or the failure of technology providers to perform;
effectiveness and security of our information technology systems and digital products and services, including the risks these systems, products or services may fail to operate as expected or planned, or expose us to cybersecurity or third-party risks (including exposure of our confidential customer and other confidential information); and
ability to recruit, train and retain key personnel.
For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report on Form 10-Q, including the exhibits hereto. In addition, for additional discussion of those risks and uncertainties that have the potential to affect our business, financial condition, results of operations, cash flows or prospects in a material and adverse manner, you should review Risk Factors in Part II, Item 1A of this Report and in Part I, Item 1A, of our Annual Report on Form 10-K for the year ended December 31, 2021 (2021 10-K), as subsequently updated in other reports we file from time to time with the U.S. Securities and Exchange Commission (SEC).
Unless expressly indicated or the context requires otherwise, the terms "we," "our," "us," "Company" and "NMI" in this document refer to NMI Holdings, Inc., a Delaware corporation, and its wholly owned subsidiaries on a consolidated basis.

4


PART I
Item 1. Financial Statements



INDEX TO FINANCIAL STATEMENTS
Condensed Consolidated Balance Sheets as of September 30, 2022 (Unaudited) and December 31, 2021
Condensed Consolidated Statements of Operations and Comprehensive Income (Loss) for the three and nine months ended September 30, 2022 and 2021 (Unaudited)
Condensed Consolidated Statements of Changes in Shareholders' Equity for the three and nine months ended September 30, 2022 and 2021 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2022 and 2021 (Unaudited)
Notes to Condensed Consolidated Financial Statements (Unaudited)

5

NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)
September 30, 2022December 31, 2021
Assets(In Thousands, except for share data)
Fixed maturities, available-for-sale, at fair value (amortized cost of $2,248,737 and $2,078,773 as of September 30, 2022 and December 31, 2021, respectively)
$1,973,931 $2,085,931 
Cash and cash equivalents (including restricted cash of $2,159 and $3,165 as of September 30, 2022 and December 31, 2021, respectively)
125,812 76,646 
Premiums receivable67,202 60,358 
Accrued investment income13,342 11,900 
Prepaid expenses4,694 3,530 
Deferred policy acquisition costs, net59,483 59,584 
Software and equipment, net32,156 32,047 
Intangible assets and goodwill3,634 3,634 
Prepaid reinsurance premiums1,454 2,393 
Reinsurance recoverable 19,755 20,320 
Other assets 102,380 94,238 
Total assets$2,403,843 $2,450,581 
Liabilities
Debt$395,683 $394,623 
Unearned premiums130,652 139,237 
Accounts payable and accrued expenses73,945 72,000 
Reserve for insurance claims and claim expenses94,944 103,551 
Reinsurance funds withheld3,716 5,601 
Warrant liability, at fair value 2,363 
Deferred tax liability, net166,609 164,175 
Other liabilities 12,428 3,245 
Total liabilities877,977 884,795 
Commitments and contingencies (see Note 11)
Shareholders' equity
Common stock - class A shares, $0.01 par value; 86,463,874 shares issued and 83,796,313 shares outstanding as of September 30, 2022 and 85,792,849 shares issued and outstanding as of December 31, 2021 (250,000,000 shares authorized)
865 858 
Additional paid-in capital969,359 955,302 
Treasury Stock, at cost: 2,667,561 and 0 common shares as of September 30, 2022 and December 31, 2021, respectively
(51,195) 
Accumulated other comprehensive (loss) income, net of tax(221,266)1,485 
Retained earnings 828,103 608,141 
Total shareholders' equity1,525,866 1,565,786 
Total liabilities and shareholders' equity$2,403,843 $2,450,581 



See accompanying notes to condensed consolidated financial statements (unaudited).
6

NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) (UNAUDITED)
For the three months ended September 30,For the nine months ended September 30,
2022202120222021
Revenues(In Thousands, except for per share data)
Net premiums earned$118,317 $113,594 $355,682 $330,361 
Net investment income11,945 9,831 33,065 28,027 
Net realized investment gains 14 3 475 15 
Other revenues301 613 1,016 1,597 
Total revenues130,577 124,041 390,238 360,000 
Expenses
Insurance claims and claim (benefits) expenses(3,389)3,204 (7,044)12,806 
Underwriting and operating expenses27,144 34,669 90,779 103,460 
Service expenses197 787 963 1,859 
Interest expense8,036 7,930 24,128 23,767 
Gain from change in fair value of warrant liability  (1,113)(454)
Total expenses31,988 46,590 107,713 141,438 
Income before income taxes98,589 77,451 282,525 218,562 
Income tax expense 21,751 17,258 62,563 47,956 
Net income $76,838 $60,193 $219,962 $170,606 
Earnings per share
Basic$0.91 $0.70 $2.58 $1.99 
Diluted$0.90 $0.69 $2.53 $1.96 
Weighted average common shares outstanding
Basic84,444 85,721 85,369 85,563 
Diluted85,485 86,880 86,420 86,794 
Net income $76,838 $60,193 $219,962 $170,606 
Other comprehensive loss, net of tax:
Unrealized losses in accumulated other comprehensive income (loss), net of tax benefit of $15,932 and $2,165 for the three months ended September 30, 2022 and 2021, and $59,112 and $9,168 for the nine month ended September 30, 2022 and 2021, respectively
(59,936)(8,144)(222,374)(34,487)
Reclassification adjustment for realized gains included in net income, net of tax expense of $3 and $1 for the three months ended September 30, 2022 and 2021, and $100 and $3 for the nine months ended September 30, 2022 and 2021, respectively
(10)(2)(377)(12)
Other comprehensive loss, net of tax(59,946)(8,146)(222,751)(34,499)
Comprehensive income (loss) $16,892 $52,047 $(2,789)$136,107 

See accompanying notes to condensed consolidated financial statements (unaudited).
7

NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)



Common Stock - Class AAdditional
Paid-in Capital
Treasury Stock, At CostAccumulated Other Comprehensive Income (Loss)Retained EarningsTotal
SharesAmount
(In Thousands)
Balances, December 31, 202185,793 $858 $955,302 $ $1,485 $608,141 $1,565,786 
Common stock: class A shares issued related to warrant exercises51 1 1,143 — — — 1,144 
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes430 4 26 — — — 30 
Repurchase of common stock(235)— — (5,000)(5,000)
Share-based compensation expense— — 4,196 — — — 4,196 
Change in unrealized investment gains/losses, net of tax benefit of $26,262
— — — — (98,794)— (98,794)
Net income— — — — — 67,680 67,680 
Balances, March 31, 202286,039 $863 $960,667 $(5,000)$(97,309)$675,821 $1,535,042 
Common stock: class A shares issued related to warrant exercises33 *624 — — — 624 
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes68 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, 202284,701 $864 $964,654 $(30,371)$(161,320)$751,265 $1,525,092 
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes89 1 823 — — — 824 
Repurchase of common stock(994)— — (20,824)— — (20,824)
Share-based compensation expense— — 3,882 — — — 3,882 
Change in unrealized investment gains/losses, net of tax benefit of $15,935
— — — — (59,946)— (59,946)
Net income— — — — — 76,838 76,838 
Balances, September 30, 202283,796 $865 $969,359 $(51,195)$(221,266)$828,103 $1,525,866 

*    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).
8

NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)



Common Stock - Class AAdditional
Paid-in Capital
Accumulated Other Comprehensive Income Retained EarningsTotal
SharesAmount
(In Thousands)
Balances, December 31, 202085,163 $852 $937,872 $53,856 $377,011 $1,369,591 
Common stock: class A shares issued related to warrant exercises24 *557 — — 557 
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes413 4 (624)— — (620)
Share-based compensation expense— — 3,022 — — 3,022 
Change in unrealized investment gains/losses, net of tax benefit of $11,997
— — — (45,133)— (45,133)
Net income— — — — 52,891 52,891 
Balances, March 31, 202185,600 $856 $940,827 $8,723 $429,902 $1,380,308 
Common stock: class A shares issued related to warrant exercises8 *197 — — 197 
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes95 1 (286)— — (285)
Share-based compensation expense— — 3,383 — — 3,383 
Change in unrealized investment gains/losses, net of tax expense of $4,992
— — — 18,780 — 18,780 
Net income— — — — 57,522 57,522 
Balances, June 30, 202185,703 $857 $944,121 $27,503 $487,424 $1,459,905 
Common stock: class A shares issued related to warrants28 *603 — — 603 
Common stock: class A shares issued under stock plans, net of shares withheld for employee taxes12 *(45)— — (45)
Share-based compensation expense— — 3,716 — — 3,716 
Change in unrealized investment gains/losses, net of tax benefit of $2,166
— — — (8,146)— (8,146)
Net income— — — — 60,193 60,193 
Balances, September 30, 202185,743 $857 $948,395 $19,357 $547,617 $1,516,226 
*    During the three months ended March 31, 2021 and June 30, 2021, we issued 23,750 and 8,096 common shares, respectively, with a par value of $0.01 in connection with the exercise of warrants, which are not identifiable in this schedule due to rounding. During the three months ended September 30, 2021, we issued 27,715 common shares with a par value of $0.01 in connection with the exercise of warrants, and 12,436 common shares with a par value of $0.01 in connection with the exercise of options and vesting of restricted stock units granted under our stock plans, which are not identifiable in this schedule due to rounding.






See accompanying notes to condensed consolidated financial statements (unaudited).
9

NMI HOLDINGS, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
For the nine months ended September 30,
20222021
Cash flows from operating activities(In Thousands)
Net income $219,962 $170,606 
Adjustments to reconcile net income to net cash provided by operating activities:
Net realized investment gains (475)(15)
Gain from change in fair value of warrant liability(1,113)(454)
Depreciation and amortization8,976 8,250 
Net amortization of premium on investment securities4,864 5,020 
Amortization of debt discount and debt issuance costs1,374 1,349 
Deferred income taxes61,647 47,949 
Share-based compensation expense11,945 10,121 
Changes in operating assets and liabilities:
Premiums receivable(6,844)(8,720)
Accrued investment income(1,442)(2,252)
Prepaid expenses(1,164)(1,117)
Deferred policy acquisition costs, net101 863 
Reinsurance recoverable565 (2,812)
Other assets849 (79)
Unearned premiums(8,585)20,807 
Reserve for insurance claims and claim expenses(8,607)14,037 
Reinsurance balances, net(1,067)(174)
Accounts payable and accrued expenses617 18,002 
Net cash provided by operating activities281,603 281,381 
Cash flows from investing activities
Purchase of short-term investments(229,816)(10,640)
Purchase of fixed-maturity investments, available-for-sale(156,973)(390,988)
Proceeds from maturity of short-term investments129,570  
Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale82,865 100,215 
Software and equipment(7,757)(9,107)
Net cash used in investing activities(182,111)(310,520)
Cash flows from financing activities
Proceeds from issuance of common stock related to employee equity plans5,392 4,137 
Proceeds from issuance of common stock related to warrants518 412 
Taxes paid related to net share settlement of equity awards(5,041)(5,087)
Repurchases of common stock(51,195) 
Net cash used in financing activities(50,326)(538)
Net increase (decrease) in cash, cash equivalents and restricted cash49,166 (29,677)
Cash, cash equivalents and restricted cash, beginning of period76,646 126,937 
Cash, cash equivalents and restricted cash, end of period$125,812 $97,260 
Supplemental disclosures of cash flow information
Interest paid$14,750 $14,750 
Income taxes refunded 457 
See accompanying notes to condensed consolidated financial statements (unaudited).
10

NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Organization, Basis of Presentation and Summary of Accounting Principles
NMI Holdings, Inc. (NMIH) is a Delaware corporation, incorporated in May 2011, to provide private mortgage guaranty insurance (which we refer to as mortgage insurance or MI) through its wholly owned insurance subsidiaries, National Mortgage Insurance Corporation (NMIC) and National Mortgage Reinsurance Inc One (Re One). Our common stock is listed on the Nasdaq exchange under the ticker symbol "NMIH".
NMIC, our primary insurance subsidiary, issued its first mortgage insurance policy in April 2013. NMIC is licensed to write mortgage insurance in all 50 states and the District of Columbia (D.C.). Re One historically provided reinsurance coverage to NMIC in accordance with certain statutory risk retention requirements. Such requirements have been repealed and the reinsurance coverage provided by Re One to NMIC has been commuted. Re One remains a wholly owned, licensed insurance subsidiary; however, it does not currently have active insurance exposures. In August 2015, NMIH capitalized a wholly owned subsidiary, NMI Services, Inc. (NMIS), through which we offer outsourced loan review services to mortgage loan originators.
Basis of Presentation
The accompanying unaudited condensed consolidated financial statements, which include the results of NMIH and its wholly owned subsidiaries, have been prepared in accordance with the instructions to Form 10-Q as prescribed by the SEC for interim reporting and include other information and disclosures required by accounting principles generally accepted in the U.S. (GAAP). Our accounts are maintained in U.S. dollars. These statements should be read in conjunction with our consolidated financial statements and notes thereto for the year ended December 31, 2021, included in our 2021 10-K. All intercompany transactions have been eliminated. Certain reclassifications to previously reported financial information have been made to conform to our current period presentation. The preparation of financial statements in accordance with GAAP requires management to make estimates and assumptions that affect reported amounts of assets and liabilities, as well as disclosure of contingent assets and liabilities as of the balance sheet date. Estimates also affect the reported amounts of income and expenses for the reporting period. Actual results could differ from those estimates. The results of operations for the interim period may not be indicative of the results that may be expected for the full year ending December 31, 2022.
COVID-19 Developments
On January 30, 2020, the World Health Organization (WHO) declared the outbreak of COVID-19 a global health emergency and subsequently characterized the outbreak as a global pandemic on March 11, 2020. In an effort to stem contagion and control the spread of the virus, the population at large severely curtailed day-to-day activity and local, state and federal regulators imposed a broad set of restrictions on personal and business conduct nationwide. The COVID-19 pandemic, along with the widespread public and regulatory response, caused a dramatic slowdown in U.S. and global economic activity.
The global dislocation caused by COVID-19 was unprecedented and the pandemic had a direct impact on the U.S. housing market, private mortgage insurance industry, and our business and operating performance for an extended period. More recently, however, the acute economic impact of COVID-19 has begun to recede. While the pandemic continues to pose a global risk and affect communities across the U.S., it is no longer the single dominant driver of our performance that it had been in earlier periods. COVID-19 is now one of several mosaic factors, including a range of macroeconomic forces and public policy initiatives that are influencing our market and business.
Although we are optimistic that the nationwide COVID-19 vaccination effort and other medical advances will continue to support a normalization of personal and business activity, the path of the virus remains unknown and subject to risk. Given this uncertainty, we are not able to fully assess or estimate the impact the pandemic may have on the mortgage insurance market, our business performance or our financial position at this time, and it remains possible COVID-19 could again trigger more severe and adverse outcomes in future periods.
Significant Accounting Principles
There have been no changes to our significant accounting principles as described in Item 8, "Financial Statements and Supplementary Data - Notes to Consolidated Financial Statements - Note 2 - Summary of Accounting Principles" of our 2021 10-K, except as noted in "Share Repurchases" and "Recent Accounting Pronouncements - Adopted" below.
Share Repurchases
Common stock repurchases are recorded at cost and presented as "Treasury Stock" in the consolidated balance sheet and statement of changes in shareholders' equity. At the date of repurchase, shareholders' equity is reduced by the aggregate repurchase price plus commissions and other expenses that arise from the repurchase transaction.
11

NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Recent Accounting Pronouncements - Adopted
In August 2020, the Financial Accounting Standards Board (the FASB) issued ASU 2020-06, Debt—Debt with Conversion and Other Options (Subtopic 470-20) and Derivatives and Hedging—Contracts in Entity's Own Equity (Subtopic 815-40). The update simplifies the accounting for convertible instruments and contracts on an entity's own equity, including warrants, eliminating certain triggers for derivative accounting. We adopted this ASU on January 1, 2022 and determined it did not have a material impact on our consolidated financial statements, including our warrant liability.
Recent Accounting Pronouncements - Not Yet Adopted
In August 2018, the FASB issued ASU 2018-12, Targeted Improvements to the Accounting for Long-Duration Contracts (Topic 944). The update provides guidance to the existing recognition, measurement, presentation and disclosure requirements for long-duration contracts issued by an insurance entity. The FASB subsequently issued ASU 2019-09 in November 2019 and ASU 2020-11 in November 2020, which amended the effective date for this standard and provided transition relief to facilitate early application for long duration contracts. The standard will now take effect for public business entities for fiscal years, and interim periods within those fiscal years, beginning after December 15, 2022. We have evaluated the impact of the adoption of this guidance and have determined it will not have a material impact on our consolidated financial statements.
In March 2020, the FASB issued ASU 2020-04, Reference Rate Reform (Topic 848). The update provides optional guidance to ease the potential burden in accounting for reference rate reform on financial reporting. Reference rate reform refers to the global transition away from referencing the London Interbank Offered Rate (LIBOR) in financial contracts, which is expected to be discontinued during a transition period from 2021 through 2023. 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. We continue to monitor the impact the discontinuance of LIBOR will have on our contracts and other transactions; however, the adoption of, and future elections under this ASU are not expected to have a material impact on our consolidated financial statements as the ASU will ease, if warranted, the requirements for accounting for the future effects of the rate reform.

2. Investments
We hold all investments on an available-for-sale basis and evaluate each position quarterly for impairment. We recognize an impairment on a security through the statement of operations if (i) we intend to sell the impaired security; or (ii) it is more likely than not that we will be required to sell the impaired security prior to recovery of its amortized cost basis. If a sale is intended or likely to be required, we write down the amortized cost basis of the security to fair value and recognize the full amount of the impairment through the consolidated statement of operations and comprehensive income as a "Net Realized Investment Loss." To the extent we determine that a security impairment is credit-related, an impairment loss is recognized through the statement of operations as a provision for credit loss expense. The portion of a security impairment attributed to other non-credit related factors is recognized in other comprehensive income, net of taxes.
12

NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Fair Values and Gross Unrealized Gains and Losses on Investments
Amortized
Cost
Gross UnrealizedFair
Value
GainsLosses
As of September 30, 2022(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies$82,275 $82 $(2,445)$79,912 
Municipal debt securities569,931 33 (81,109)488,855 
Corporate debt securities1,409,344 248 (185,066)1,224,526 
Asset-backed securities75,783  (6,374)69,409 
Total bonds2,137,333 363 (274,994)1,862,702 
Short-term investments111,404 54 (229)111,229 
Total investments$2,248,737 $417 $(275,223)$1,973,931 
Amortized
Cost
Gross UnrealizedFair
Value
GainsLosses
As of December 31, 2021(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies$29,443 $981 $ $30,424 
Municipal debt securities553,793 5,689 (5,404)554,078 
Corporate debt securities1,388,204 22,990 (17,364)1,393,830 
Asset-backed securities96,324 684 (427)96,581 
Total bonds2,067,764 30,344 (23,195)2,074,913 
Short-term investments11,009 9  11,018 
Total investments$2,078,773 $30,353 $(23,195)$2,085,931 
We did not own any mortgage-backed securities in our asset-backed securities portfolio at September 30, 2022 or December 31, 2021.
The following table presents a breakdown of the fair value of our corporate debt securities by issuer industry group as of September 30, 2022 and December 31, 2021:
September 30, 2022December 31, 2021
Financial37 %38 %
Consumer24 24 
Communications12 11 
Utilities10 10 
Technology9 9 
Industrial8 8 
Total100 %100 %
As of September 30, 2022 and December 31, 2021, approximately $5.4 million and $5.6 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.
13

NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Scheduled Maturities
The amortized cost and fair value of available-for-sale securities as of September 30, 2022 and December 31, 2021, 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 September 30, 2022Amortized
Cost
Fair
Value
(In Thousands)
Due in one year or less$212,904 $211,769 
Due after one through five years896,340 822,528 
Due after five through ten years1,048,875 858,304 
Due after ten years14,835 11,921 
Asset-backed securities75,783 69,409 
Total investments$2,248,737 $1,973,931 
As of December 31, 2021Amortized
Cost
Fair
Value
(In Thousands)
Due in one year or less$81,699 $82,201 
Due after one through five years630,625 644,447 
Due after five through ten years1,215,224 1,207,997 
Due after ten years54,901 54,705 
Asset-backed securities96,324 96,581 
Total investments$2,078,773 $2,085,931 
Aging of Unrealized Losses
As of September 30, 2022, the investment portfolio had gross unrealized losses of $275.2 million, of which $173.4 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, 2021, the investment portfolio had gross unrealized losses of $23.2 million, of which $6.5 million were associated with securities that had been in an unrealized loss position for a period of twelve months or longer. For those securities in an unrealized loss position, the length of time the securities were in such a position is as follows:
Less Than 12 Months12 Months or GreaterTotal
# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses
As of September 30, 2022($ In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies23 $79,912 $(2,445) $ $ 23 $79,912 $(2,445)
Municipal debt securities114 284,217 (39,319)126 201,638 (41,790)240 485,855 (81,109)
Corporate debt securities205 590,692 (55,393)115 621,820 (129,673)320 1,212,512 (185,066)
Asset-backed securities19 56,981 (4,454)7 12,428 (1,920)26 69,409 (6,374)
Short-term investments9 78,859 (229)   9 78,859 (229)
Total 370 $1,090,661 $(101,840)248 $835,886 $(173,383)618 $1,926,547 $(275,223)
14

NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
Less Than 12 Months12 Months or GreaterTotal
# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses# of SecuritiesFair ValueUnrealized Losses
As of December 31, 2021($ In Thousands)
Municipal debt securities151 $314,823 $(4,959)2 $8,138 $(445)153 $322,961 $(5,404)
Corporate debt securities114 653,488 (11,426)20 146,003 (5,938)134 799,491 (17,364)
Asset-backed securities11 57,601 (357)1 1,977 (70)12 59,578 (427)
Total276 $1,025,912 $(16,742)23 $156,118 $(6,453)299 $1,182,030 $(23,195)
Allowance for credit losses
As of September 30, 2022 and December 31, 2021, 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 nine-month periods ended September 30, 2022 or September 30, 2021.
The increase in the number of securities in and the aggregate size of the unrealized loss position as of September 30, 2022, was driven by fluctuations in interest rates and, to a lesser extent, movements in credit spreads following the purchase date of certain securities. We evaluated the securities in an unrealized loss position as of September 30, 2022, 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 September 30, 2022 are not indicative of the ultimate collectability of the current amortized cost of the securities.
Net Investment Income
The following table presents the components of net investment income:
For the three months ended September 30,For the nine months ended September 30,
2022202120222021
(In Thousands)
Investment income$12,314 $10,170 $34,084 $29,003 
Investment expenses(369)(339)(1,019)(976)
Net investment income$11,945 $9,831 $33,065 $28,027 

The following table presents the components of net realized investment gains:
For the three months ended September 30,For the nine months ended September 30,
2022202120222021
(In Thousands)
Gross realized investment gains$24 $3 $490 $15 
Gross realized investment losses(10) (15) 
Net realized investment gains$14 $3 $475 $15 

15

NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
3. Fair Value of Financial Instruments
The following describes the valuation techniques used by us to determine the fair value of our financial instruments:
We established a fair value hierarchy by prioritizing the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and the lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy under this standard are described below:
Level 1 - Fair value measurements based on quoted prices in active markets that we have the ability to access for identical assets or liabilities. Market price data generally is obtained from exchange or dealer markets. We do not adjust the quoted price for such instruments.
Level 2 - Fair value measurements based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly or indirectly. Level 2 inputs include quoted prices for similar assets and liabilities in active markets, quoted prices for identical or similar assets or liabilities in markets that are not active, and inputs other than quoted prices that are observable for the asset or liability, such as interest rates and yield curves that are observable at commonly quoted intervals.
Level 3 - Fair value measurements based on valuation techniques that use significant inputs that are unobservable. Both observable and unobservable inputs may be used to determine the fair values of positions classified in Level 3. The circumstances for using these measurements include those in which there is little, if any, market activity for the asset or liability. Therefore, we must make certain assumptions, which require significant management judgment or estimation about the inputs a hypothetical market participant would use to value that asset or liability.
In certain cases, the inputs used to measure fair value may fall into different levels of the fair value hierarchy. In such cases, the level in the fair value hierarchy is determined based on the lowest level input that is significant to the fair value measurement in its entirety.
Assets classified as Level 1 and Level 2
To determine the fair value of securities available-for-sale in Level 1 and Level 2 of the fair value hierarchy, independent pricing sources have been utilized. One price is provided per security based on observable market data. To ensure securities are appropriately classified in the fair value hierarchy, we review the pricing techniques and methodologies of the independent pricing sources and believe that their policies adequately consider market activity, either based on specific transactions for the issue valued or based on modeling of securities with similar credit quality, duration, yield and structure that were recently traded. A variety of inputs are utilized by the independent pricing sources including benchmark yields, reported trades, non-binding broker/dealer quotes, issuer spreads, two sided markets, benchmark securities, bids, offers and reference data including data published in market research publications. Inputs may be weighted differently for any security, and not all inputs are used for each security evaluation. Market indicators, industry and economic events are also considered. This information is evaluated using a multidimensional pricing model. Quality controls are performed by the independent pricing sources throughout this process, which include reviewing tolerance reports, trading information and data changes, and directional moves compared to market moves. This model combines all inputs to arrive at a value assigned to each security. We have not made any adjustments to the prices obtained from the independent pricing sources.
Liabilities classified as Level 3
We calculate the fair value of outstanding warrants utilizing Level 3 inputs, including a Black-Scholes option-pricing model, in combination with a binomial model, and we value the pricing protection features within the warrants using a Monte-Carlo simulation model. Variables in the model include the risk-free rate of return, dividend yield, expected life and expected volatility of our stock price. All outstanding and unexercised warrants expired in April 2022 and there was no warrant liability remaining as of September 30, 2022.

16

NMI HOLDINGS, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
The following tables present the level within the fair value hierarchy at which our financial instruments were measured:
Fair Value Measurements Using
Quoted Prices in
Active Markets for
Identical Assets
(Level 1)
Significant Other
Observable Inputs
(Level 2)
Significant
Unobservable
Inputs
(Level 3)
Fair Value
As of September 30, 2022(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies$79,912 $ $ $