<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
JUNE 30, 1998
-------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from to
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Commission file number 1-11356
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CMAC INVESTMENT CORPORATION
---------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
DELAWARE 23-2691170
-------- ----------
<S> <C>
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
</TABLE>
<TABLE>
<CAPTION>
1601 MARKET STREET, PHILADELPHIA, PA 19103
- ------------------------------------ -----
<S> <C>
(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: 22,697,033 shares of
Common Stock, $0.001 par value, outstanding on August 11, 1998.
<PAGE> 2
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
PAGE NUMBER
Part I - Financial Information
<S> <C>
Consolidated Balance Sheets - June 30, 1998 and
December 31, 1997............................................... 3
Consolidated Statements of Income - For the quarters and six month periods
ended June 30, 1998 and 1997.................................... 4
Consolidated Statement of Changes in Common Stockholders'
Equity - For the six month period ended June 30, 1998........... 5
Consolidated Statements of Cash Flows - For the six month periods ended
June 30, 1998 and 1997.......................................... 6
Notes to Consolidated Financial Statements.................................. 7
Management's Discussion and Analysis of Results of
Operations and Financial Condition.............................. 8-11
Part II - Other Information, as applicable.............................................. 12
Signature............................................................................... 13
</TABLE>
- 2 -
<PAGE> 3
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
----------- -----------
(Unaudited)
(In thousands, except share amounts)
<S> <C> <C>
Assets
Investments
Fixed maturities held to maturity - at amortized cost (fair value
$514,155 and $517,931).............................................. $484,559 $487,941
Fixed maturities available for sale - at fair value
(amortized cost $140,268 and $91,949)............................... 147,706 97,962
Equity securities available for sale - at fair value (cost $15,001).... 15,365 --
Short-term investments................................................. 15,825 11,027
Cash......................................................................... 3,499 2,364
Deferred policy acquisition costs............................................ 28,089 25,025
Provisional losses recoverable............................................... 33,011 31,325
Other assets................................................................. 54,915 48,971
--------- --------
$782,969 $704,615
========= ========
Liabilities and Stockholders' Equity
Unearned premiums............................................................ $ 45,239 $ 49,332
Reserve for losses........................................................... 173,486 148,628
Deferred federal income taxes................................................ 5,894 6,541
Accounts payable and accrued expenses........................................ 42,002 30,171
--------- ---------
266,621 234,672
--------- ---------
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;
22,691,915 shares and 22,536,674 shares issued
and outstanding........................................................ 23 22
Additional paid-in capital................................................... 184,818 179,846
Retained earnings............................................................ 286,436 246,166
Net unrealized gain on investments, net of tax............................... 5,071 3,909
--------- ---------
476,348 429,943
--------- ---------
$782,969 $704,615
========= =========
</TABLE>
See notes to consolidated financial statements.
- 3 -
<PAGE> 4
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
--------- --------- --------- ---------
(In thousands, except per-share amounts)
<S> <C> <C> <C> <C>
Revenues:
Premiums written:
Direct ............................ $ 79,632 $ 62,387 $ 148,308 $ 114,094
Assumed ........................... 98 110 108 129
Ceded ............................. (8,942) (5,859) (15,383) (10,501)
--------- --------- --------- ---------
Net premiums written .................... 70,788 56,638 133,033 103,722
(Increase) decrease in unearned premiums (1,260) 1,134 3,675 8,362
--------- --------- --------- ---------
Premiums earned ......................... 69,528 57,772 136,708 112,084
Net investment income ................... 9,467 8,428 18,771 16,512
Gain on sales of investments ............ 11 372 361 484
Other income ............................ 2,289 1,125 4,490 2,215
--------- --------- --------- ---------
81,295 67,697 160,330 131,295
--------- --------- --------- ---------
Expenses:
Provision for losses .................... 32,973 28,266 66,010 55,019
Policy acquisition costs ................ 8,899 7,753 17,504 15,191
Other operating expenses ................ 8,903 6,331 17,287 12,277
--------- --------- --------- ---------
50,775 42,350 100,801 82,487
--------- --------- --------- ---------
Pretax income ....................................... 30,520 25,347 59,529 48,808
Provision for income taxes .......................... 8,295 6,785 16,252 12,962
--------- --------- --------- ---------
Net income .......................................... $ 22,225 $ 18,562 $ 43,277 $ 35,846
========= ========= ========= =========
Basic net income per share .......................... $ 0.95 $ 0.79 $ 1.84 $ 1.52
========= ========= ========= =========
Diluted net income per share ........................ $ 0.91 $ 0.76 $ 1.76 $ 1.47
========= ========= ========= =========
Average number of common shares outstanding -
basic .............................................. 22,613 22,440 22,648 22,429
========= ========= ========= =========
Average number of common and common equivalent
shares outstanding - diluted ........................ 23,632 23,358 23,630 23,311
========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
- 4 -
<PAGE> 5
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN COMMON STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
Net Unrealized
Additional Gain on
Common Paid-In Retained Investments
Stock Capital Earnings (Net of Tax) Total
---------- ---------- -------- -------------- ---------
(In thousands)
<S> <C> <C> <C> <C> <C>
Balance, December 31, 1997 ........................ $ 22 $ 179,846 $ 246,166 $ 3,909 $ 429,943
Net income (unaudited) ................... -- -- 43,277 -- 43,277
Change in net unrealized gain on
investments - net of tax (unaudited) -- -- -- 1,162 1,162
Issuance of common stock (unaudited) ..... 1 4,972 -- -- 4,973
Dividends (unaudited) .................... -- -- (3,007) -- (3,007)
--------- --------- --------- --------- ---------
Balance, June 30, 1998 (unaudited) ................ $ 23 $ 184,818 $ 286,436 $ 5,071 $ 476,348
========= ========= ========= ========= =========
</TABLE>
See notes to consolidated financial statements.
- 5 -
<PAGE> 6
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
<TABLE>
<CAPTION>
Six Months Ended
June 30
1998 1997
---- ----
(In thousands)
<S> <C> <C>
Cash flows from operating activities ............................... $ 58,340 $ 40,731
-------- --------
Cash flows from investing activities:
Proceeds from sales of investments available for sale ..... 6,832 11,187
Proceeds from sales of investments held to maturity ....... 1,031 --
Proceeds from redemptions of investments available for sale 14,512 8,191
Proceeds from redemptions of investments held to maturity . 3,225 3,120
Purchases of investments available for sale ............... (80,307) (11,820)
Purchases of investments held to maturity ................. -- (40,971)
Purchases of short-term investments - net ................. (4,798) (4,643)
Other ..................................................... 334 (3,885)
-------- --------
Net cash used in investing activities .............................. (59,171) (38,821)
-------- --------
Cash flows from financing activities:
Proceeds from issuance of common stock .................... 4,973 1,538
Dividends paid ............................................ (3,007) (2,995)
-------- --------
Net cash from (used in) financing activities ....................... 1,966 (1,457)
-------- --------
Increase in cash ................................................... 1,135 453
Cash, beginning of period .......................................... 2,364 3,189
-------- --------
Cash, end of period ................................................ $ 3,499 $ 3,642
======== ========
Supplemental disclosures of cash flow information:
Income taxes paid .................................................. $ 15,000 $ 13,000
======== ========
Interest paid ...................................................... $ 12 $ --
======== ========
</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. All
such adjustments are of a normal, recurring nature. The results of operations
for interim periods are not necessarily indicative of results to be expected for
the full year.
Basic net income per share is based on the weighted average number of
common shares outstanding, while diluted net income per share is based on the
weighted average number of common shares outstanding and common share
equivalents that would arise from the exercise of stock options. Preferred stock
dividends are deducted from net income in the net income 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, 1997.
2 - COMPREHENSIVE INCOME
The Company adopted Statement of Financial Accounting Standards No.
130, "Reporting Comprehensive Income," effective January 1, 1998. The Statement
requires disclosure of amounts from transactions and other events which are
currently excluded from the statement of operations and are recorded directly to
stockholders' equity. Total comprehensive income for the six month periods ended
June 30, 1998 and 1997 amounted to $44,078,000 and $35,251,000, respectively and
comprehensive income for the quarters ended June 30, 1998 and 1997 amounted to
$23,044,000 and $18,408,000, respectively.
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<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 six months of 1998 was $43.3 million, a
20.7% increase compared to $35.8 million for the first six months of 1997 and
net income for the quarter ended June 30, 1998 was $22.2 million, a 19.7%
increase compared to $18.6 million for the same period in 1997. These
improvements were the result of significant growth in premiums earned and net
investment income, partially offset by a higher provision for losses, and an
increase in both policy acquisition costs and other operating expenses.
New primary insurance written during the first six months of 1998 was
$9.8 billion, a 62.3% increase compared to $6.0 billion for the first six months
of 1997 and for the second quarter of 1998, new primary insurance written of
$5.7 billion was 80.0% higher than the $3.2 billion written in the second
quarter of 1997. The increase in CMAC's primary new insurance written was
primarily due to a 51.3% increase in new insurance written volume in the private
mortgage insurance industry for the first six months of 1998 as compared to the
same period of 1997 and a 61.2% increase in the industry's new insurance written
volume in the second quarter of 1998 as compared to the second quarter of 1997.
In addition, CMAC completed a large seasoned loan transaction in the second
quarter of 1998, insuring approximately $700 million of California loans with a
risk profile similar to the Company's regular business. CMAC's market share of
the industry was 11.8% for the six months ended June 30, 1998, compared to 11.0%
for the same period of 1997. Additionally, in the first six months of 1998, CMAC
wrote an increased amount of pool insurance which represented an addition to
risk of $184.5 million as compared to $111.1 million in the same period of 1997
and for the quarter ended June 30, 1998, CMAC wrote pool insurance representing
an addition to risk of $104.4 million as compared to $60.0 million for the same
period in 1997. Most of this pool insurance volume related to a group of
structured transactions composed primarily of Fannie Mae- and Freddie
Mac-eligible ("GSEs") conforming mortgage loans that are geographically well
dispersed throughout the United States and have lower average loan-to-value
ratios than CMAC's primary business. Under a pool insurance transaction, the
exposure to CMAC on each individual loan is uncapped; however, the aggregate
stop-loss percentage (typically 1.0% to 1.5% of the aggregate original loan
balance in the Fannie Mae/Freddie Mac transactions) is the most that can be paid
out in losses before the insurer's exposure terminates. The Company expects its
pool insurance activity to continue at this same level throughout 1998 due to
commitments outstanding and will review its capacity and willingness to provide
such pool insurance after these commitments expire. Premium rates on such pool
insurance are significantly lower than on primary insurance loans due to the low
stop-loss levels, which limit the overall risk exposure to CMAC, and the focus
of such product on high quality primary insurance customers. Standard & Poor's
has recently determined that the capital requirements to support such pool
insurance will be significantly more stringent than on primary insurance due to
the low premium rates and CMAC has reviewed its capital levels to ensure
compliance with these requirements. The average stop-loss on pool insurance
written during the first half of 1998 was 1.3%.
CMAC's volume in the first six months of 1998 was positively impacted
by relatively lower interest rates which affected the entire mortgage industry.
The trend toward lower interest rates, which began in the third quarter of 1997,
caused refinancing activity during the first half of 1998 to continue at a
higher rate although strong housing prices have caused a large percentage of the
refinanced loans to be closed without private mortgage insurance at an LTV of
80% or below. Therefore, the rate of growth in the private mortgage industry is
not as high as that of the entire mortgage market. CMAC's refinancing activity
as a percentage of primary new insurance written was 32% for the six month
period ended June 30, 1998 as compared to 16% for the same period in 1997;
however, for the second quarter of 1998, that rate had declined to 29% from 37%
in the first quarter of 1998, indicating that the current refinance boom is
slowing. The persistency rate, which is defined as the percentage of policies in
force that are renewed in any given year, was 74.8% for the twelve months ended
June 30, 1998 as compared to 87.9% for the twelve months ended June 30, 1997.
This decrease was consistent with the increased level of refinancing activity
during the first half of 1998; however, a decline in the refinancing level
toward the end of the second quarter suggests an increase in the persistency
rate over the balance of 1998.
Net premiums earned in the first six months of 1998 were $136.7
million, a 22.0% increase compared to $112.1 million for the first six months of
1997 and premiums earned for the quarter ended June 30, 1998 were $69.5 million,
a 20.3% increase compared to $57.8 million for the same period of 1997. This
increase reflected the insurance in force growth resulting from strong new
insurance volume and the increase in pool insurance written during the first
half of 1998, and was offset by the decline in persistency levels. The strong
volume led to an increase in direct primary
- 8 -
<PAGE> 9
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(CONTINUED)
insurance in force of 6.7%, from $46.9 billion at December 31, 1997 to $50.0
billion at June 30, 1998. Direct pool risk in force also grew to $722.1 million
at June 30, 1998 from $593.9 million at the end of 1997, an increase of 21.6%
for the six month period.
Net investment income for the first half of 1998 was $18.8 million, a
13.7% increase compared to $16.5 million for the same period of 1997 and for the
second quarter of 1998, net investment income was $9.5 million as compared to
$8.4 million for the second quarter of 1997, a 12.3% increase. These increases
were a result of continued growth in invested assets primarily due to positive
operating cash flows of $58.3 million for the first half of 1998. The Company
has continued to invest new operating cash flow in tax-advantaged securities,
primarily municipal bonds, although the Company did modify its investment policy
to allow the purchase of various other asset classes, including common stock and
convertible securities, beginning in the second quarter of 1998. The Company's
intent is to target the common equity exposure at 5% of the investment
portfolio's market value while the convertible securities and mortgage-backed
securities exposure are each targeted at 10%. During the second quarter of 1998,
the Company purchased $15.0 million of common equities which led to a slight
decrease in the growth in investment income during the second quarter. Although
there will be a short-term decline in investment income from this change in
investment policy, the Company expects no material long-term impact on total
investment returns as a result of this change.
The provision for losses was $66.0 million for the first six months
of 1998, an increase of 20.0% compared to $55.0 million for the first six months
of 1997, and for the second quarter of 1998, the provision was $33.0 million as
compared to $28.3 million for the second quarter of 1997, and increase of 16.7%.
These increases reflected the significant growth and maturation of CMAC's book
of business over the past several years, the continued adverse experience of
California loans (despite early signs of an improving trend in California), and
the relatively poor experience of certain "affordable housing" program loans
insured starting in 1994, especially in Florida. Although the ultimate
performance of the books of business that originated since 1994 cannot yet be
determined, it appears that the ultimate loss levels will be higher than
average, partially due to the presence of these "affordable housing" loans.
CMAC's overall default rate at June 30, 1998 was 1.67% as compared to 1.82% at
December 31, 1997 and 1.76% at March 31, 1998. The number of defaults rose from
12,359 at December 31, 1997 to 13,205 at June 30, 1998 and the average loss
reserve per default rose from $12,026 at the end of 1997 to $13,138 at June 30,
1998. This increase in average loss reserve per default reflected the Company's
continued implementation of a more conservative reserve calculation for certain
loans in default perceived as having a higher risk of claim incidence. In
addition, an increase in the average loan balance and the coverage percentage on
loans originated beginning in 1995 has necessitated a higher reserve balance on
loans in a default status due to the increased ultimate exposure on these loans.
The default rate in California was 2.9% (including pool) at June 30, 1998 as
compared to 3.6% at December 31, 1997 and claims paid in California during the
first half of 1998 were $22.7 million, representing approximately 47.3% of total
claims as compared to 61.5% for the same period of 1997. The default rate in
Florida was 3.4% (including pool) at June 30, 1998 as compared to 3.8% at
December 31, 1997 and claims paid in Florida during the first six months of 1998
were $5.5 million, representing approximately 11.5% of total claims as compared
to only 5.4% for the same period in 1997. The "affordable housing" early default
experience is a result of insuring certain loans in which the borrowers'
principal and interest reserves and other credit factors were not as strong as
on prior years' books of business. Certain underwriting changes were implemented
near the end of 1996 to compensate for the factors that contributed to the early
default experience on these "affordable housing" loans; however, it is too early
to determine the impact of such changes. The Company believes that many loan
servicers have changed the timing of reporting loans in default, which has
continued to result in an incremental increase in the number of loans reported
in default. This change allows for earlier intervention with borrowers in
default, which might lead to a higher cure rate for such loans.
Underwriting and other operating expenses were $34.8 million for the
first six months of 1998, an increase of 26.7% compared to $27.5 million for the
same period of 1997. For the second quarter of 1998, these expenses were $17.8
million as compared to $14.1 million for the second quarter of 1997, an increase
of 26.4%. These expenses consisted of policy acquisition expenses, which relate
directly to the acquisition of new business, and other operating expenses, which
primarily represent overhead and administrative costs.
Policy acquisition costs in the first six months of 1998 were $17.5
million, an increase of 15.2% compared to
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<PAGE> 10
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(CONTINUED)
$15.2 million for the first half of 1997 and these expenses were $8.9 million in
the second quarter of 1998, an increase of 14.8% compared to $7.8 million for
the same period in 1997. These increases reflect the growth in sales- and
underwriting-related expenses relating to the Company's continued growth in new
insurance written. The Company has continued development of its marketing
infrastructure needed to support a focus on larger, national mortgage lenders in
order to take advantage of the widespread consolidation occurring in the
mortgage lending industry. Other operating expenses for the six months ended
June 30, 1998 were $17.3 million, an increase of $5.0 million or 40.8% as
compared to $12.3 million for the same period in 1997 and these expenses were
$8.9 million for the second quarter of 1998, an increase of 40.6% compared to
$6.3 million for the second quarter of 1998. Most of the increase continued to
result from an increase in expenses associated with the company's ancillary
services, specifically contract underwriting. Contract underwriting expenses for
the six month period ended June 30, 1998 were $8.5 million as compared to $4.6
million for the same period of 1997, an increase of 86.1% and these expenses
were $4.8 million for the second quarter of 1998 as compared to $2.4 million for
the second quarter of 1997, an increase of 96.2%. The increase in contract
underwriting expenses during the first half of 1998 of $3.9 million represented
78.6% of the $5.0 million increase in other operating expenses for the first six
months of 1998, while the $2.3 million increase in contract underwriting
expenses in the second quarter of 1998 represented 91.4% of the $2.6 million
increase in other operating expenses for the second quarter of 1998. Some of
these additional contract underwriting expenses were correspondingly offset by
increases to other income, which rose 102.7% from $2.2 million in the first six
months of 1997 to $4.5 million for the same period in 1998 and 103.5% from $1.1
million in the first quarter of 1997 to $2.3 million in the first quarter of
1998. During the first six months of 1998, loans underwritten via contract
underwriting accounted for 31% of applications, 27% of insurance commitments,
and 21% of certificates issued by CMAC as compared to 29% of applications, 25%
of commitments and 22% of certificates in the first six months of 1997. The
total volume of loans underwritten via contract underwriting is expected to
increase which could result in an increase in other operating expenses without a
corresponding matching increase in mortgage insurance volume. Changing market
conditions caused the cost of contract underwriting to increase during 1997 due
to the high demand for available resources and this is expected to continue
throughout 1998. However, as further efficiencies are realized in the contract
underwriting process due to the integration with Freddie Mac's Loan Prospector
and Fannie Mae's Desktop Underwriter origination systems, the cost per contract
underwriting loan underwritten could decrease.
The effective tax rate for the six months ended June 30, 1998 was
27.3% as compared to 26.6% for the same period in 1997 and the tax rate for the
second quarter of 1998 was 27.2% as compared to 26.8% for the second quarter of
1997. Operating income accounted for 67.9% and 68.9%, respectively, of net
income for the six months and quarter ended June 30, 1998 as compared to 65.2%
and 65.3%, respectively, for the same periods in 1997, thus resulting in the
increase in effective tax rates for 1998.
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.
Cash flows from operating activities for the six months ended June
30, 1998 were $58.3 million as compared to $40.7 million for the same period of
1997. This increase consisted of an increase in net premiums written and
investment income received, partially offset by an increase in claims paid and
operating expenses. 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.
Stockholders' equity, which includes redeemable preferred stock of
$40.0 million, increased from $469.9 million at December 31, 1997 to $516.3
million at June 30, 1998, primarily as a result of net income of $43.3 million,
unrealized gains on the Company's investment portfolio of $1.2 million and the
exercise of stock options that provided capital of $5.0 million, partially
offset by dividends of $3.0 million.
As of June 30, 1998, the Company and its subsidiaries had no material
commitments for capital expenditures.
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<PAGE> 11
CMAC INVESTMENT CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS OF OPERATIONS
AND FINANCIAL CONDITION
(CONTINUED)
YEAR 2000 ISSUE
Many existing computer programs use only two digits to identify a
year in the date field. These programs were designed and developed without
considering the impact of the upcoming change in the century. If not corrected,
many computer applications could fail or create erroneous results by or at the
year 2000. The Company has conducted an analysis of its systems and has
initiated its Year 2000 project to ensure that all of its systems will be Year
2000 compliant by the end of 1998. "Year 2000 compliant" means fault free
performance in the processing of data and date related data (including, but not
limited to, calculating, comparing and sequencing) by all hardware and software
products, individually and in combination. Fault free performance must include
the manipulation of data when dates are in the 20th or 21st century and must be
transparent to the user. The Company has completed the necessary program
modifications to make them Year 2000 compliant and all date sensitive files have
been appropriately modified and updated. Currently, the Company is in the midst
of building a stand-alone testing environment that will allow simulation of
different year-end scenarios and it is expected that testing of the Year 2000
programming changes and file modifications will be completed by October 1998.
Although the Company will be Year 2000 compliant, in the event that third
parties with whom the Company transacts business are not Year 2000 compliant,
potential for an adverse effect on the Company's operations may remain. The
Company is taking precautions to minimize this risk by contacting each of its
mission critical business partners to ascertain their Year 2000 compliance
status. The Company's Year 2000 compliance project has not resulted in any
material costs and has had no material impact on its financial condition.
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<PAGE> 12
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
On May 13 , 1998, the Annual Meeting of
Stockholders of CMAC Investment Corporation
was held. The stockholders re-elected three
nominees from the existing Board of
Directors to three year terms expiring in
2001. The Stockholders also approved the
designation of Deloitte & Touche as
independent auditors and voted to adopt the
CMAC Investment Corporation 1997 Employee
Stock Purchase Plan.
The number of votes cast for and withheld
from the election of each director nominee
is set forth below. There were no votes
against, abstentions or broker non-votes in
the election of directors.
<TABLE>
<CAPTION>
Election of Directors:
For Withheld
--- --------
<S> <C> <C>
Herbert Wender 20,017,178 412,615
James W. Jennings 20,141,653 288,140
Robert W. Richards 20,227,138 202,655
</TABLE>
The number of votes cast for, against and
abstentions relating to the designation of
Deloitte & Touche as independent auditors is
set forth below. There were no broker
non-votes in the approval of Deloitte & Touche.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
Approval of the designation
of Deloitte & Touche as
independent auditors: 20,420,860 3,252 5,681
</TABLE>
The number of votes cast for, against and
abstentions relating to the adoption of the
CMAC Investment Corporation 1997 Employee
Stock Purchase Plan is set forth below. There
were no broker non-votes in the adoption of
the Employee Stock Purchase Plan.
<TABLE>
<CAPTION>
For Against Abstain
--- ------- -------
<S> <C> <C> <C>
Adoption of the CMAC
Investment Corporation
1997 Employee Stock
Purchase Plan: 20,209,837 201,386 18,570
</TABLE>
ITEM 5. Other Information - None
ITEM 6. a. Exhibits -
*Exhibit 11.1 - Statement Re: Computation of Per Share Earnings
*Exhibit 27.1 - Financial Data Schedule
b. Reports on Form 8-K - None
* Filed Herewith
- 12 -
<PAGE> 13
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: August 13, 1998 /s/ C. Robert Quint
-------------------------------
C. Robert Quint
Senior Vice President, Chief Financial Officer
(Principal Accounting Officer)
- 13 -
<PAGE> 1
EXHIBIT 11.1
CMAC Investment Corporation
Schedule of Net Income Per Share
<TABLE>
<CAPTION>
Quarter Ended June 30 Six Months Ended June 30
--------------------- -------------------------
1998 1997 1998 1997
---- ---- ---- ----
(In thousands, except per-share amounts and market prices)
<S> <C> <C> <C> <C>
Net income............................................................. $22,225 $18,562 $43,277 $35,846
Preferred stock dividend adjustment.................................... (825) (825) (1,650) (1,650)
-------- -------- -------- --------
Adjusted net income.................................................... $21,400 $17,737 $41,627 $34,196
Average diluted stock options outstanding.............................. 1,473.2 1,546.2 1,518.0 1,561.6
Average exercise price per share....................................... 21.27 16.19 21.06 16.16
Average market price per share - diluted basis......................... 62.47 39.86 63.31 37.39
Average common shares outstanding...................................... 22,648 22,440 22,613 22,429
Increase in shares due to exercise of options -
diluted basis......................................................... 982 918 1,019 882
Adjusted shares outstanding - diluted.................................. 23,630 23,358 23,632 23,311
Net income per share - basic .......................................... $ 0.95 $ 0.79 $ 1.84 $ 1.52
======== ======== ======== ========
Net income per share - diluted......................................... $ 0.91 $ 0.76 $ 1.76 $ 1.47
======== ======== ======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> JUN-30-1998
<CASH> 3,499
<SECURITIES> 663,455
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 116,015
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 782,969
<CURRENT-LIABILITIES> 266,621
<BONDS> 0
40,000
0
<COMMON> 23
<OTHER-SE> 476,325
<TOTAL-LIABILITY-AND-EQUITY> 782,969
<SALES> 0
<TOTAL-REVENUES> 160,330
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 34,791
<LOSS-PROVISION> 66,010
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 59,529
<INCOME-TAX> 16,252
<INCOME-CONTINUING> 43,277
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 43,277
<EPS-PRIMARY> 1.84
<EPS-DILUTED> 1.76
</TABLE>
