<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended
MARCH 31, 1996
-----------------------
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 1-11356
--------
CMAC INVESTMENT CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<S> <C>
DELAWARE 23-2691170
--------- ----------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1601 MARKET STREET, PHILADELPHIA, PA 19103
- ------------------------------------ -----
(Address of principal executive offices) (zip code)
</TABLE>
(215) 564-6600
--------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or if such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
---------- ----------
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date: 11,164,735 shares
of Common Stock, $0.001 par value, outstanding on May 9, 1996.
<PAGE> 2
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
<S> <C>
Part I - Financial Information
Consolidated Balance Sheets - March 31, 1996 and
December 31, 1995 . . . . . . . . . . . . . . . . . . . . . . . . 3
Consolidated Statements of Income - For the quarters ended
March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . 4
Consolidated Statement of Changes in Common Stockholders'
Equity - For the quarter ended March 31, 1996 . . . . . . . . . . 5
Consolidated Statements of Cash Flows - For the quarters ended
March 31, 1996 and 1995 . . . . . . . . . . . . . . . . . . . . . 6
Notes to Consolidated Financial Statements . . . . . . . . . . . . . . . . 7
Management's Discussion and Analysis of Results of
Operations and Financial Condition . . . . . . . . . . . . . . . . 8-9
Part II - Other Information, as applicable . . . . . . . . . . . . . . . . . . . . 10
Signature . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
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<PAGE> 3
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31 December 31
1996 1995
------------ -----------
(Unaudited)
(In thousands, except share amounts)
<S> <C> <C>
Assets
Investments
Fixed maturities held to maturity - at amortized cost (fair value
$348,452 and $335,779) . . . . . . . . . . . . . . . . . . . . . $336,997 $316,553
Fixed maturities available for sale - at fair value
(amortized cost $108,175 and $111,227) . . . . . . . . . . . . . 108,997 116,033
Short-term investments . . . . . . . . . . . . . . . . . . . . . . 4,550 4,951
Cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,782 3,646
Deferred policy acquisition costs . . . . . . . . . . . . . . . . . . 21,418 21,350
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,735 36,613
-------- --------
$513,479 $499,146
======== ========
Liabilities and Stockholders' Equity
Unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . $ 55,071 $ 56,115
Reserve for losses . . . . . . . . . . . . . . . . . . . . . . . . . . 78,283 67,301
Deferred federal income taxes . . . . . . . . . . . . . . . . . . . . 6,082 5,804
Accounts payable and accrued expenses . . . . . . . . . . . . . . . . 24,182 31,310
-------- --------
163,618 160,530
-------- --------
Preferred stockholder's equity
Redeemable preferred stock, par value $.001 per share;
800,000 shares issued and outstanding - at
redemption value . . . . . . . . . . . . . . . . . . . . . . . . . 40,000 40,000
-------- --------
Common stockholders' equity
Common stock, par value $.001 per share; 80,000,000 shares
authorized; 11,159,735 shares and 11,129,617 shares issued
and outstanding . . . . . . . . . . . . . . . . . . . . . . . . 11 11
Additional paid-in capital . . . . . . . . . . . . . . . . . . . . 164,455 163,665
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . 144,861 131,816
Net unrealized gain on investments, net of tax . . . . . . . . . . 534 3,124
-------- --------
309,861 298,616
-------- --------
$513,479 $499,146
======== ========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 4
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
March 31
1996 1995
---- ----
(In thousands, except per-share amounts)
<S> <C> <C>
Revenues:
Premiums written:
Direct . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 44,424 $ 28,627
Assumed . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 40
Ceded . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,193) (2,335)
-------- --------
Net premiums written . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,237 26,332
Decrease in unearned premiums . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,709 4,078
-------- --------
Premiums earned . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,946 30,410
Net investment income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,117 6,168
Gain on sales of investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . 438 70
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,030 282
-------- ---------
50,531 36,930
-------- --------
Expenses:
Provision for losses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20,026 12,170
Policy acquisition costs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6,412 5,389
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,023 4,083
-------- --------
31,461 21,642
-------- --------
Pretax income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19,070 15,288
Provision for income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,643) (3,987)
-------- --------
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,427 $ 11,301
======== ========
Net income per share . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1.18 $ 0.93
======== ========
Average number of common and common equivalent shares
outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,501 11,235
======== ========
</TABLE>
See notes to consolidated financial statements.
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<PAGE> 5
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net
Unrealized
Additional Gain (Loss)
Common Paid-In Retained on Investments
Stock Capital Earnings (Net of Tax) Total
------- --------- ---------- -------------- -----
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1995 . . . . . . . . . . . . . $ 11 $ 163,665 $ 131,816 $ 3,124 $ 298,616
Net income (unaudited) . . . . . . . . . . . . -- -- 14,427 -- 14,427
Net unrealized loss on
investments - net of tax (unaudited) . . . -- -- -- (2,590) (2,590)
Issuance of common stock (unaudited) . . . . . -- 790 -- -- 790
Dividends (unaudited) . . . . . . . . . . . . -- -- (1,382) -- (1,382)
------- --------- --------- --------- ----------
Balance, March 31, 1996 (unaudited) . . . . . . . . . $ 11 $ 164,455 $ 144,861 $ 534 $ 309,861
======= ========= ========= ========= ===========
</TABLE>
See notes to consolidated financial statements.
-5-
<PAGE> 6
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended
March 31
1996 1995
---- ----
(In thousands)
<S> <C>
Cash flows from operating activities . . . . . . . . . . . . . . . . . . $ 20,065 $ 10,107
--------- ---------
Cash flows from investing activities:
Proceeds from sales of investments available for sale . . . . . . 5,883 4,032
Proceeds from redemptions of investments available for sale . . . 6,990 4,600
Proceeds from redemptions of investments held to maturity . . . . 375 471
Purchases of investments available for sale . . . . . . . . . . . (9,365) (14,516)
Purchases of investments held to maturity . . . . . . . . . . . . (23,794) (6,379)
Sales (purchases) of short-term investments - net . . . . . . . . 401 (547)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,827) 192
--------- ---------
Net cash used in investing activities . . . . . . . . . . . . . . . . . . (21,337) (12,147)
--------- ---------
Cash flows from financing activities:
Proceeds from issuance of common stock . . . . . . . . . . . . . . 790 1,079
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . (1,382) (1,376)
--------- ---------
Net cash used in financing activities . . . . . . . . . . . . . . . . . . (592) (297)
--------- ---------
Decrease in cash . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,864) (2,337)
Cash, beginning of period . . . . . . . . . . . . . . . . . . . . . . . . 3,646 3,926
--------- ---------
Cash, end of period . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 1,782 $ 1,589
========= =========
Supplemental disclosures of cash flow information:
Income taxes paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 0 $ 100
========= =========
Interest paid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 25 $ 30
========= =========
</TABLE>
See notes to consolidated financial statements.
-6-
<PAGE> 7
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
(UNAUDITED)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1 - UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
The consolidated financial statements include the accounts of CMAC
Investment Corporation (the "Company") and its subsidiaries including its
principal operating subsidiary, Commonwealth Mortgage Assurance Company
("CMAC"), and are presented on the basis of generally accepted accounting
principles.
The financial information for the interim periods included herein is
unaudited; however, such information reflects all adjustments which are, in the
opinion of management, necessary for a fair presentation of the financial
position, results of operations, and cash flows for the interim periods. The
results of operations for interim periods are not necessarily indicative of
results to be expected for the full year.
Net income per share is based on the average number of common shares
outstanding and common share equivalents which would arise from the exercise of
stock options. Preferred stock dividends are deducted from net income in the
earnings per share computation.
For a summary of significant accounting policies and additional
financial information, see the CMAC Investment Corporation Annual Report on
Form 10-K for the year ended December 31, 1995.
2 - NEW ACCOUNTING STANDARDS
In October 1995, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 123, "Accounting for
Stock-Based Compensation" ("FAS 123"). FAS 123 requires expanded disclosures
of stock-based compensation arrangements with employees and encourages, but
does not require, the recognition of compensation expense for the fair value of
stock options and other equity instruments granted as compensation to employees
for fiscal years beginning after December 15, 1995. The Company is currently
evaluating the effect that FAS 123 would have on its financial position and
earnings.
-7-
<PAGE> 8
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS AND FINANCIAL
CONDITION
RESULTS OF OPERATIONS
Net income for the first quarter of 1996 was $14.4 million, a 27.7%
increase compared to $11.3 million for the first quarter of 1995. This
improvement was a result of significant growth in premiums earned, investment
income and other income, partially offset by a higher provision for losses and
operating expenses.
Premiums earned for the first quarter of 1996 were $41.9 million, a
37.9% increase compared to $30.4 million for the first quarter of 1995. This
increase reflected the insurance in force growth resulting from strong new
insurance volume and a continuation of high persistency levels. Persistency is
defined as the percentage of policies in force that are renewed in any given
year. New primary insurance written in the first quarter of 1996 was $2.9
billion, a 54.4% increase, compared to $1.9 billion in the first quarter of
1995. This volume increased as a result of a 42.5% increase in the private
mortgage insurance market and CMAC's 9.7% market share for the first quarter of
1996, compared to 9.0% in the first quarter of 1995. The volume in the first
quarter of 1996 was aided by strong levels of refinancing due to relatively low
interest rates. Refinanced loans represented 26.5% of new primary insurance
written as compared to 6.5% in the first quarter of 1995. Additionally, in the
first quarter of 1996, CMAC wrote $2.2 billion of pool insurance which was
significantly higher than has been written in past periods. Most of this pool
insurance volume related to one structured transaction which is geographically
dispersed throughout the United States and has a very low stop-loss level. The
persistency rate for the year ended March 31, 1996 was 86.9% compared to 85.1%
for the year ended March 31, 1995. The strong volume and high persistency led
to an increase in primary insurance in force for the quarter of 7.5% from $32.4
billion to $34.8 billion.
Net investment income for the first quarter of 1996 was $7.1 million,
a 15.4% increase compared to $6.2 million for the first quarter of 1995. This
increase was a result of continued growth in invested assets primarily due to
positive operating cash flow. The Company continues to invest new operating
cash flow in tax-advantaged securities, primarily municipal bonds.
The provision for losses in the first quarter of 1996 was $20.0
million, an increase of 64.6% compared to $12.2 million in 1995. In addition
to the maturation of CMAC's growing book of business which has lead to higher
levels of defaults, this increase was due in part to continued excessive
defaults and claims in California. The default rate in California increased to
3.5% at March 31, 1996, as compared to 2.7% at March 31, 1995 and claims paid
in California for the first quarter of 1996 were $6.0 million, representing
approximately 56% of total claims paid. The Company has also continued
implementation of a more conservative loss reserve calculation for certain
loans in default perceived as having a higher risk of claim incidence. In
addition, the Company believes that many loan servicers have changed the timing
of reporting loans in default which has resulted in an incremental increase in
the number of loans in default. This change will allow earlier intervention
with borrowers in default which might lead to a higher cure rate for such
loans.
Policy acquisition costs in the first quarter of 1996 were $6.4
million, an increase of 19.0% compared to $5.4 million in the first quarter of
1995. This reflects the increase in volume of new insurance written and
increases in sales-related expenses incurred in an effort to continue
geographic expansion and market share growth. Other operating expenses for the
quarter ended March 31, 1996 were $5.0 million, an increase of 23.0% compared
to $4.1 million in 1995. Much of the increase continued to result from an
expansion of the Company's technology efforts and an increase in expenses
associated with the Company's ancillary services, specifically contract
underwriting. Many of these additional contract underwriting expenses were
correspondingly offset by increases to other income.
The effective income tax rate for the quarter ended March 31, 1996 was
24.3%. This compares to 26.1% for the quarter ended March 31, 1995. This
decrease is due in part to the growing percentage of tax-advantaged securities
in the Company's investment portfolio and in part to an increase in the
exercise of non-qualified stock options.
LIQUIDITY AND CAPITAL RESOURCES
CMAC's sources of funds consist primarily of premiums and investment
income. Funds are applied primarily to the payment of CMAC's claims and
operating expenses.
-8-
<PAGE> 9
Cash flows from operating activities for the quarter ended March 31,
1996 were $20.1 million as compared to $10.1 million for the same period of
1995. This increase consisted of an increase in net premiums written,
partially offset by an increase in claims paid and operating expenses. Monthly
premiums, which now constitute over 90% of new business, have negatively
impacted cash flow in the short term although long-term cash flow is not
expected to be materially affected. Positive cash flows are invested pending
future payments of claims and other expenses; cash flow shortfalls, if any, are
funded through sales of short-term investments and certain other investment
portfolio securities.
Common stockholders' equity increased from $298.6 million at December
31, 1995 to $309.9 million at March 31, 1996, primarily as a result of net
income of $14.4 million, partially offset by a net decrease of $2.6 million in
the value of investments classified as available for sale and by dividends of
$1.4 million.
As of March 31, 1996, the Company and its subsidiaries had no material
commitments for capital expenditures.
-9-
<PAGE> 10
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
PART II - OTHER INFORMATION
ITEM 1. Legal Proceedings - None
ITEM 2. Changes in Securities - None
ITEM 3. Defaults upon Senior Securities - None
ITEM 4. Submission of Matters to a Vote of Security Holders - None
ITEM 5. Other Information - None
ITEM 6. a. Exhibits -
*Exhibit 11.1 - Statement Re: Computation of Per Share Earnings
b. Reports on Form 8-K - None
* Filed Herewith
-10-
<PAGE> 11
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
CMAC INVESTMENT CORPORATION
Date: May 10, 1996 C. Robert Quint
---------------------------------
C. Robert Quint
Vice President, Finance and Controller
(Principal Accounting Officer)
-11-
<PAGE> 1
EXHIBIT 11.1
CMAC INVESTMENT CORPORATION
SCHEDULE OF NET INCOME PER SHARE
<TABLE>
<CAPTION>
Quarter Ended March 31
----------------------------------------------
1996 1995
(In thousands, except per-share amounts and market prices)
<S> <C> <C>
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 14,427 $ 11,301
Preferred stock dividend adjustment . . . . . . . . . . . . . . . . . . (825) (825)
---------- ----------
Adjusted net income . . . . . . . . . . . . . . . . . . . . . . . . . . $ 13,602 $ 10,476
Average dilutive stock options outstanding . . . . . . . . . . . . . . 754.5 763.7
Average exercise price per share . . . . . . . . . . . . . . . . . . . $ 27.91 $ 24.26
Average market prices - primary basis . . . . . . . . . . . . . . . . . $ 53.02 $ 34.88
Average market price - fully diluted basis . . . . . . . . . . . . . . $ 56.50 $ 37.75
Average common share outstanding . . . . . . . . . . . . . . . . . . . 11,144 11,002
Increase in shares due to exercise of options -
primary basis . . . . . . . . . . . . . . . . . . . . . . . . . . . . 357 233
Increase in shares due to exercise of options -
fully diluted basis . . . . . . . . . . . . . . . . . . . . . . . . . 381 273
Adjusted shares outstanding - primary . . . . . . . . . . . . . . . . . 11,501 11,235
Adjusted shares outstanding - fully diluted . . . . . . . . . . . . . . 11,525 11,275
Net income per share - primary and fully diluted . . . . . . . . . . . $ 1.18 $ 0.93
========== ==========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1996
<PERIOD-END> MAR-31-1996
<CASH> 1,782
<SECURITIES> 450,544
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 61,153
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 513,479
<CURRENT-LIABILITIES> 163,618
<BONDS> 0
40,000
0
<COMMON> 11
<OTHER-SE> 309,850
<TOTAL-LIABILITY-AND-EQUITY> 513,479
<SALES> 0
<TOTAL-REVENUES> 50,531
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 11,435
<LOSS-PROVISION> 20,026
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 19,070
<INCOME-TAX> 4,643
<INCOME-CONTINUING> 14,427
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 14,427
<EPS-PRIMARY> 1.18
<EPS-DILUTED> 1.18
</TABLE>
