NMI (NMIH) 10-Q 2014 Q2 Quarterly report

UNITED STATES

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, 2014

OR

o 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 Street, Emeryville, CA	94608
(Address of principal executive offices)	(Zip Code)

(855) 530-6642

(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 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 x NO o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).

YES x NO o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o	Accelerated filer o	Non-accelerated filer x	Smaller reporting company o
		(Do not check if a smaller reporting company)

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

YES o NO x

The number of shares of common stock, $0.01 par value per share, of the registrant outstanding on August 4, 2014 was 58,363,334 shares.

TABLE OF CONTENTS

Cautionary Note Regarding Forward Looking Statements		3
PART I		5
Item 1.	Financial Statements	5
Item 2.	Management's Discussion and Analysis of Financial Condition and Results of Operations	23
Item 3.	Quantitative and Qualitative Disclosures About Market Risk	47
Item 4.	Controls and Procedures	48
PART II		49
Item 1.	Legal Proceedings	49
Item 1A.	Risk Factors	50
Item 6.	Exhibits	52
Signatures		54
Exhibit Index		i

2

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 (the “Securities Act”), Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the U.S. Private Securities Litigation Reform Act of 1995. Any statements about our expectations, 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,” “believes,” “can,” “could,” “may,” “predicts,” “potential,” “should,” “will,” “estimate,” “plans,” “projects,” “continuing,” “ongoing,” “expects,” “intends” and similar words or phrases. Accordingly, these statements are only predictions and involve estimates, known and unknown risks, assumptions and uncertainties that could cause actual results to differ materially from those expressed in them. Our actual results could differ materially from those anticipated in such forward looking statements as a result of many factors. For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2013, as supplemented by the risks discussed below in this report in Part II, Item 1A, "Risk Factors," as well as factors more fully described in Part I, Item 2, "Management's Discussion and Analysis of Financial Condition and Results of Operations" and elsewhere in this report, including the exhibits hereto, and subsequent reports and registration statements filed from time to time with the U.S. Securities and Exchange Commission (the "SEC").

Any or all of our forward looking statements in this report may turn out to be inaccurate. The inclusion of this forward looking information should not be regarded as a representation by us or any other person that the future plans, estimates or expectations contemplated by us will be achieved. We have based these forward looking statements largely 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:

• our limited operating history;

• retention of our existing certificates of authority in each state and Washington D.C. and our ability to remain a mortgage insurer in good standing in each state and Washington D.C.;

• changes in the business practices of the GSEs, including adoption and implementation of their proposed new mortgage insurer eligibility requirements or decisions to decrease or discontinue the use of mortgage insurance;

• our ability to remain a qualified mortgage insurer under the requirements imposed by the GSEs;

• actions of existing competitors and potential market entry by new competitors;

• changes to laws and regulations, including changes to the GSEs' role in the secondary mortgage market or other changes that could affect the residential mortgage industry generally or mortgage insurance in particular;

• changes in general economic, market and political conditions and policies, interest rates, inflation and investment results or other conditions that affect the housing market or the markets for home mortgages or mortgage insurance;

• changes in the regulatory environment;

• our ability to implement our business strategy, including our ability to attract customers, 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;

• failure of risk management or investment strategy;

• claims exceeding our reserves or amounts we had expected to experience;

• failure to develop, maintain and improve necessary information technology systems or the failure of technology providers to perform;

• ability to recruit, train and retain key personnel; and

• emergence of claim and coverage issues.

3

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. You should, however, review the risk factors we describe in the reports we will file from time to time with the SEC after the date of this report.

Unless expressly indicated or the context requires otherwise, the terms "we", "our", "us" and "Company" in this document refer to NMI Holdings, Inc., a Delaware corporation, and its wholly owned subsidiaries.

4

PART I

Item 1. Financial Statements and Supplementary Data

INDEX TO FINANCIAL STATEMENTS

Condensed Consolidated Balance Sheets as of June 30, 2014 and December 31, 2013	6
Condensed Consolidated Statements of Comprehensive Loss for the three and six months ended June 30, 2014 and 2013	7
Condensed Consolidated Statements of Changes in Shareholders' Equity for the six months ended June 30, 2014 and the year ended December 31, 2013	8
Condensed Consolidated Statements of Cash Flows for the six months ended June 30, 2014 and 2013	9
Notes to Condensed Consolidated Financial Statements	10

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NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED BALANCE SHEETS (UNAUDITED)

	June 30, 2014			December 31, 2013
Assets	(In Thousands, except for share data)
Investments, available-for-sale, at fair value:
Fixed maturities (amortized cost of $413,816 and $416,135 as of June 30, 2014 and December 31, 2013, respectively)	$	413,307		$	409,088
Total investments	413,307			409,088
Cash and cash equivalents	34,671			55,929
Accrued investment income	1,989			2,001
Premiums receivable	143			19
Prepaid expenses	1,139			1,519
Deferred policy acquisition costs, net	1,051			90
Goodwill and other indefinite lived intangible assets	3,634			3,634
Software and equipment, net	10,172			8,876
Other assets	57			63
Total Assets	$	466,163		$	481,219
Liabilities
Unearned premiums	$	7,679		$	1,446
Reserve for insurance claims and claims expenses	28			—
Accounts payable and accrued expenses	8,494			10,052
Warrant liability, at fair value	4,552			6,371
Current tax payable	1,367			—
Deferred tax liability	133			133
Total Liabilities	22,253			18,002
Commitments and contingencies
Shareholders' Equity
Common stock - Class A shares, $0.01 par value, 58,363,334 and 58,052,480 shares issued and outstanding as of June 30, 2014 and December 31, 2013, respectively (250,000,000 shares authorized)	584			581
Additional paid-in capital	558,432			553,707
Accumulated other comprehensive loss, net of tax	(3,173		)	(7,047		)
Accumulated deficit	(111,933		)	(84,024		)
Total Shareholders' Equity	443,910			463,217
Total Liabilities and Shareholders' Equity	$	466,163		$	481,219

See accompanying notes to consolidated financial statements.

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NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF COMPREHENSIVE LOSS (UNAUDITED)

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013
Revenues	(In Thousands, except for share data)
Premiums written
Direct	$	5,051		$	1		$	10,229		$	1
Net premiums written	5,051			1			10,229			1
Increase in unearned premiums	(2,958		)	—			(6,232		)	—
Net premiums earned	2,093			1			3,997			1
Net investment income	1,468			1,407			2,957			1,817
Net realized investment gains	—			452			—			481
Gain (loss) from change in fair value of warrant liability	952			(1,114		)	1,769			(1,080		)
Gain from settlement of warrants	—			—			37			—
Total Revenues	4,513			746			8,760			1,219
Expenses
Insurance claims and claims expenses	28			—			28			—
Amortization of deferred policy acquisition costs	42			—			61			—
Other underwriting and operating expenses	18,595			17,020			37,877			29,445
Total Expenses	18,665			17,020			37,966			29,445
Loss before income taxes	(14,152		)	(16,274		)	(29,206		)	(28,226		)
Income tax benefit	(1,297		)	—			(1,297		)	—
Net Loss	(12,855		)	(16,274		)	(27,909		)	(28,226		)
Other Comprehensive Income (Loss), net of tax
Net unrealized holding gains (losses) for the period included in accumulated other comprehensive loss, net of tax expense of $2,664 and $0 for the three months ended June 30, 2014 and 2013, respectively, and $2,664 and $0 for the six months ended June 30, 2014 and 2013, respectively	840			(10,210		)	3,874			(9,323		)
Other Comprehensive Income (Loss), net of tax	840			(10,210		)	3,874			(9,323		)
Total Comprehensive Loss	$	(12,015	)	$	(26,484	)	$	(24,035	)	$	(37,549	)
Loss per share
Basic and diluted loss per share	$	(0.22	)	$	(0.29	)	$	(0.48	)	$	(0.51	)
Weighted average common shares outstanding	58,289,801			55,629,932			58,176,181			55,565,374

See accompanying notes to consolidated financial statements.

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NMI HOLDINGS, INC.

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

	Common stock					Additional Paid-in Capital			Accumulated Other Comprehensive Loss			Accumulated Deficit			Total
	Class A		Class B
	(In Thousands)
Balance, January 1, 2013	$	553	$	2		$	517,032		$	1		$	(28,840	)	$	488,748
Common stock Class A shares issued under stock plans, net of shares withheld for employee taxes	1		—			(1,579		)	—			—			(1,578		)
Common stock Class A shares issued related to initial public offering (net of expenses of $3,483)	25		—			27,887			—			—			27,912
Conversion of Class B shares of common stock into Class A shares of common stock	2		(2		)	—			—			—			—
Share-based compensation expense	—		—			10,367			—			—			10,367
Change in unrealized investment gains/losses, net of tax of $0	—		—			—			(7,048		)	—			(7,048		)
Net loss	—		—			—			—			(55,184		)	(55,184		)
Balance, December 31, 2013	$	581	$	—		$	553,707		$	(7,047	)	$	(84,024	)	$	463,217
Balance, January 1, 2014	$	581	$	—		$	553,707		$	(7,047	)	$	(84,024	)	$	463,217
Common stock Class A shares issued related to warrants	*		—			13			—			—			13
Common stock Class A shares issued under stock plans, net of shares withheld from employee taxes	3		—			11			—			—			14
Share-based compensation expense	—		—			4,701			—			—			4,701
Change in unrealized investment gains/losses, net of tax of $2,664	—		—			—			3,874			—			3,874
Net loss	—		—			—			—			(27,909		)	(27,909		)
Balance, June 30, 2014	$	584	$	—		$	558,432		$	(3,173	)	$	(111,933	)	$	443,910

* During the first half of 2014, we issued 1,115 common shares with a par value of $0.01 related to the exercise of warrants, which is not visible in this schedule due to rounding.

See accompanying notes to consolidated financial statements.

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NMI HOLDINGS, INC.

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)

	For the Six Months Ended June 30,
	2014			2013
Cash Flows From Operating Activities	(In Thousands)
Net loss	$	(27,909	)	$	(28,226	)
Adjustments to reconcile net loss to net cash used in operating activities:
Net realized investment gains	—			(481		)
(Gain) loss from change in fair value of warrant liability	(1,769		)	1,080
Gain from settlement of warrants	(37		)	—
Depreciation and other amortization	4,270			2,713
Share-based compensation expense	4,701			6,859
Benefit for taxes on current year unrealized gains	(1,297		)	—
Changes in operating assets and liabilities:
Accrued investment income	12			(2,105		)
Premiums receivable	(124		)	—
Prepaid expenses	380			(540		)
Deferred policy acquisition costs, net	(961		)	—
Other assets	7			53
Unearned premiums	6,232			—
Reserve for insurance claims and claims expenses	28			—
Accounts payable and accrued expenses	(1,558		)	(2,292		)
Net Cash Used in Operating Activities	(18,025		)	(22,939		)
Cash Flows From Investing Activities
Purchase of short-term investments	—			(510		)
Purchase of fixed-maturity investments, available-for-sale	(110		)	(552,174		)
Proceeds from maturity of short-term investments	—			5,375
Proceeds from redemptions, maturities and sale of fixed-maturity investments, available-for-sale	1,133			114,995
Purchase of software and equipment	(4,270		)	(3,084		)
Net Cash Used in Investing Activities	(3,247		)	(435,398		)
Cash Flows From Financing Activities
Issuance of common stock	1,086			—
Taxes paid related to net share settlement of equity awards	(1,072		)	(1,578		)
Net Cash Provided by (Used in) Financing Activities	14			(1,578		)
Net Decrease in Cash and Cash Equivalents	(21,258		)	(459,915		)
Cash and Cash Equivalents, beginning of period	55,929			485,855
Cash and Cash Equivalents, end of period	$	34,671		$	25,940

See accompanying notes to consolidated financial statements.

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NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

1. Organization and Basis of Presentation

NMI Holdings, Inc. ("NMIH"), a Delaware corporation, was formed in May 2011 with the intention of providing private mortgage guaranty insurance through a wholly owned insurance subsidiary. From May 2011 through March 2013, our activities were limited to raising capital, seeking to acquire the assets and approvals necessary to become a private mortgage guaranty insurance provider and hiring personnel. In April 2013, we, through our primary insurance subsidiary, National Mortgage Insurance Corporation ("NMIC"), wrote our first mortgage guaranty insurance policy. As of June 30, 2014, we had $939.8 million primary insurance in force ("IIF") and $4.9 billion pool IIF, with $220.9 million of primary risk-in-force ("RIF") and $93.1 million of pool RIF.

The accompanying consolidated financial statements include the accounts of NMIH and its wholly owned subsidiaries, NMIC, National Mortgage Reinsurance Inc One ("Re One"), and National Mortgage Reinsurance Inc Two ("Re Two"). On September 30, 2013, we merged Re Two into NMIC with NMIC surviving the merger.

On November 30, 2011, we entered into an agreement with MAC Financial Ltd. to acquire MAC Financial Holding Corporation and its subsidiaries, which were renamed NMIC, Re One and Re Two, for $8.5 million in cash, common stock and warrants plus the assumption of $1.3 million in liabilities ("MAC Acquisition"). In addition, we incurred $0.1 million in deferred tax liabilities as a result of the acquisition of certain indefinite-lived intangibles. The MAC Acquisition was completed in April 2012. On September 30, 2013, we merged MAC Financial Holding Corporation into NMIH, with NMIH surviving the merger.

In April 2012, we offered and sold 55.0 million shares of common stock at an issue price of $10.00 per share in a private placement ("Private Placement"). Gross proceeds from the Private Placement were $550.0 million. Net proceeds from the Private Placement, after an approximate 7% underwriting fee and other offering expenses, were approximately $510 million. The fee was escrowed for the benefit of FBR Capital Markets and Co. ("FBR") and was released to FBR upon NMIC's receipt of approval from Federal National Home Mortgage Association ("Fannie Mae") and Federal Home Loan Mortgage Corporation ("Freddie Mac") as a qualified mortgage guarantee insurer ("GSE Approval").

Under the terms of certain Registration Rights Agreements to which we are a party (collectively the "Registration Right Agreement"), we were required to obtain GSE Approval on or before January 17, 2013. NMIC was approved as an eligible mortgage guaranty insurer by Freddie Mac and Fannie Mae on January 15, 2013 and January 16, 2013, respectively, which approvals require NMIC to continue meeting certain conditions, which include an agreement to maintain minimum capital of $150 million at NMIC and that NMIC not exceed a risk-to-capital ratio of 15:1 for its first three years. Although NMIC's capital and risk-to-capital ratio are well within these constraints, at June 30, 2014, NMIH had sufficient resources to downstream cash to either insurance subsidiary, as necessary, to comply with all commitments.

In November 2013, we completed an initial public offering of 2.4 million shares of our common stock (the "IPO") and our common stock began trading on the NASDAQ on November 8, 2013, under the symbol “NMIH.” For a further discussion see "Note 2, Common Stock Offerings."

On April 7, 2014, we received our final certificate of authority (our insurance license permitting us to write mortgage guaranty insurance in that state) from the state of Wyoming. With Wyoming, we are now licensed in all 50 states and Washington D.C.

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 United States ("U.S.") Securities and Exchange Commission for interim reporting and include all of the 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, 2013 included in our Annual Report on Form 10-K. All intercompany transactions have been eliminated. 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, 2014.

Basic net loss per share is based on the weighted-average number of common shares outstanding, while diluted net loss per share is based on the weighted-average number of common shares outstanding and common stock equivalents that would be issuable upon the exercise of stock options, other stock-based compensation arrangements, and the dilutive effect of outstanding warrants. As a result of our net losses for the quarters ended June 30, 2014 and June 30, 2013, 5.9 million and 5.3 million shares of our common

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NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

stock equivalents that we issued as of each respective period under stock-based compensation arrangements and warrants were not included in the calculation of diluted net loss per share as of such dates because they were anti-dilutive.

Deferred Policy Acquisition Costs

Costs directly associated with the successful acquisition of mortgage guaranty insurance policies, consisting of certain selling expenses and other policy issuance and underwriting expenses, are initially deferred and reported as deferred policy acquisition costs ("DAC"). For each book year of business, these costs are amortized to income in proportion to estimated gross profits over the estimated life of the policies.  We recorded net DAC of $1.1 million at June 30, 2014 and $90.2 thousand at December 31, 2013.

Premium Deficiency Reserves

We consider whether a premium deficiency exists at each fiscal quarter using best estimate assumptions as of the testing date. Per ASC 944, a premium deficiency reserve shall be recognized if the sum of expected claim costs and claim adjustment expenses, expected dividends to policyholders, unamortized acquisition costs, and maintenance costs exceeds related unearned premiums and anticipated investment income. We have determined that no premium deficiency reserves were necessary for the quarter ended June 30, 2014 or for the year ended December 31, 2013.

Reclassifications

Certain items in the financial statements as of December 31, 2013 and for the quarter ended June 30, 2013 have been reclassified to conform to the current period's presentation. There was no effect on net income or shareholders' equity previously reported.

Subsequent Events

Effective July 1, 2014, we entered into a settlement agreement (the "Settlement Agreement") with Arch U.S. MI Services, Inc. ("Arch"), Germaine J. Marks and Truitte D. Todd, in their capacities as, respectively, Receiver and Special Deputy Receiver of PMI Mortgage Insurance Co., in Rehabilitation (collectively, the "Receiver") and PMI Mortgage Insurance Co., in Rehabilitation ("PMI"), to settle the complaint filed on August 8, 2012 by the Receiver against NMIH, NMIC and certain employees of the Company (collectively the "Defendants"), in California Superior Court, Alameda County (the “PMI Complaint”). Pursuant to the terms of an Asset Purchase Agreement, dated February 7, 2013, between Arch and PMI, PMI transferred and assigned to Arch all causes of action pursued in the PMI Complaint. Pursuant to the terms of the Settlement Agreement, the Company and its insurance carriers made a settlement payment in favor of Arch, and Arch released the Defendants from all claims alleged in the PMI Complaint. Per the settlement agreement, Arch moved to dismiss the PMI Complaint with prejudice, which the Court granted on July 28, 2014. The Company's portion of the settlement payment has been recorded in the Company's financial statements as of the quarter ended June 30, 2014.

On July 10, 2014, the Federal Housing Finance Agency (“FHFA”) released for public input the proposed Private Mortgage Insurer Eligibility Requirements (“PMIERs”). The PMIERs, when finalized and effective, establish operational, business, remedial and financial requirements applicable to private mortgage insurers that insure residential mortgages on loans owned or guaranteed by Fannie Mae and Freddie Mac. We discuss these proposed PMIERs in Item 2 "Management's Discussion and Analysis of Financial Condition and Results of Operations - Proposed PMIERs," below.

We have considered subsequent events through the date of this filing.

2. Common Stock Offerings

We entered into a purchase/placement agreement that closed in April 2012, pursuant to which we offered and sold an aggregate of 55,000,000 of our Class A common shares, resulting in net proceeds of approximately $510 million after an approximate 7% underwriting fee and other offering expenses. On November 8, 2013, we completed an initial public offering of 2.4 million shares of common stock, and our common stock began trading on the NASDAQ under the symbol "NMIH". Net proceeds from the offering were approximately $28 million, after an approximate 6% underwriting fee and other offering expenses and reimbursements pursuant to the underwriting agreement.

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NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

3. Investments

We have designated our investment portfolio as available-for-sale and report it at fair value. The related unrealized gains and losses are, after considering the related tax expense or benefit, recognized as a component of accumulated other comprehensive loss in shareholders' equity. Net realized investment gains and losses are reported in income based upon specific identification of securities sold.

Fair Values and Gross Unrealized Gains and Losses on Investments

	Amortized Cost		Gross Unrealized					Fair Value
			Gains		Losses
As of June 30, 2014	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	107,929	$	29	$	(650	)	$	107,308
Municipal bonds	12,013		54		(18		)	12,049
Corporate debt securities	221,111		1,072		(1,113		)	221,070
Asset-backed securities	72,763		396		(279		)	72,880
Total Investments	$	413,816	$	1,551	$	(2,060	)	$	413,307

	Amortized Cost		Gross Unrealized					Fair Value
			Gains		Losses
As of December 31, 2013	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	108,067	$	—	$	(1,461	)	$	106,606
Municipal bonds	12,017		1		(85		)	11,933
Corporate debt securities	221,899		157		(4,799		)	217,257
Asset-backed securities	74,152		114		(974		)	73,292
Total Investments	$	416,135	$	272	$	(7,319	)	$	409,088

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NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Scheduled Maturities

The amortized cost and fair values of available for sale securities at June 30, 2014 and December 31, 2013, 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 separate categories.

As of June 30, 2014	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	2,674	$	2,675
Due after one through five years	265,261		264,556
Due after five through ten years	57,718		57,843
Due after ten years	15,400		15,353
Asset-backed securities	72,763		72,880
Total Investments	$	413,816	$	413,307

As of December 31, 2013	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	—	$	—
Due after one through five years	260,855		257,501
Due after five through ten years	65,687		63,440
Due after ten years	15,441		14,855
Asset-backed securities	74,152		73,292
Total Investments	$	416,135	$	409,088

Net Realized Investment Gains (Losses) on Investments

	For the Three Months Ended June 30,					For the Six Months Ended June 30,
	2014		2013			2014		2013
	(In Thousands)
Corporate debt securities	$	—	$	488		$	—	$	517
U.S. Treasury securities and obligations of U.S. government agencies	—		(16		)	—		(16		)
Asset-backed securities	—		(20		)	—		(20		)
Total Net Realized Investment Gains	$	—	$	452		$	—	$	481

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NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Aging of Unrealized Losses

At June 30, 2014, the investment portfolio had gross unrealized losses of $2.1 million, $2.0 million of which has been in an unrealized loss position for a period of 12 months or greater. We did not consider these securities to be other-than-temporarily impaired as of June 30, 2014. We based our conclusion that these investments were not other-than-temporarily impaired at June 30, 2014 on the following facts: (i) the unrealized losses were primarily caused by interest rate movements since the purchase date; (ii) we do not intend to sell these investments and; (iii) we do not believe that it is more likely than not that we will be required to sell these investments before recovery of our amortized cost basis, which may not occur until maturity. 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 Months						12 Months or Greater						Total
	# of Securities	Fair Value		Unrealized Losses			# of Securities	Fair Value		Unrealized Losses			# of Securities	Fair Value		Unrealized Losses
As of June 30, 2014		(Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	1	$	124	$	—		15	$	74,465	$	(650	)	16	$	74,589	$	(650	)
Municipal bonds	—	—		—			1	1,732		(18		)	1	1,732		(18		)
Corporate debt securities	5	2,216		(6		)	27	96,788		(1,107		)	32	99,004		(1,113		)
Assets-backed securities	2	10,757		(101		)	6	27,130		(178		)	8	37,887		(279		)
Total Investments	8	$	13,097	$	(107	)	49	$	200,115	$	(1,953	)	57	$	213,212	$	(2,060	)

	Less Than 12 Months						12 Months or Greater					Total
	# of Securities	Fair Value		Unrealized Losses			# of Securities	Fair Value		Unrealized Losses		# of Securities	Fair Value		Unrealized Losses
As of December 31, 2013		(Dollars in Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	19	$	106,606	$	(1,461	)	—	$	—	$	—	19	$	106,606	$	(1,461	)
Municipal bonds	2	4,915		(85		)	—	—		—		2	4,915		(85		)
Corporate debt securities	47	187,714		(4,799		)	—	—		—		47	187,714		(4,799		)
Assets-backed securities	11	58,225		(974		)	—	—		—		11	58,225		(974		)
Total Investments	79	$	357,460	$	(7,319	)	—	$	—	$	—	79	$	357,460	$	(7,319	)

Net investment income is comprised of the following:

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013
	(In Thousands)
Fixed maturities	$	1,605		$	1,447		$	3,231		$	2,012
Cash equivalents	—			—			—			2
Investment income	1,605			1,447			3,231			2,014
Investment expenses	(137		)	(40		)	(274		)	(197		)
Net Investment Income	$	1,468		$	1,407		$	2,957		$	1,817

As of June 30, 2014 and December 31, 2013, there were approximately $7.1 million and $7.0 million, respectively, of cash and investments in the form of U.S. Treasury securities on deposit with various state insurance departments to satisfy regulatory requirements.

4. Fair Value of Financial Instruments

The following describes the valuation techniques used by us to determine the fair value of financial instruments held at June 30, 2014 and December 31, 2013:

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

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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 - Unadjusted quoted prices for identical assets or liabilities in active markets that are accessible at the measurement date for identical assets or liabilities;

Level 2 - Prices or valuations based on observable inputs other than quoted prices in active markets for identical assets and liabilities; and

Level 3 - Unobservable inputs that are significant to the fair value of the assets or liabilities. Level 3 assets and liabilities include financial instruments whose value is determined using pricing models, discounted cash flow methodologies, or similar techniques, as well as instruments for which the determination of fair value requires significant management judgment or estimation.

The level of market activity used to determine the fair value hierarchy is based on the availability of observable inputs market participants would use to price an asset or a liability, including market value price observations.

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

The warrants outstanding are valued using a Black-Scholes option-pricing model in combination with a binomial model and Monte Carlo simulation used to value the pricing protection features within the warrants. Variables in the model include the risk-free rate of return, dividend yield, expected life and expected volatility of our stock price.

ASC 825, Disclosures about Fair Value of Financial Instruments, requires all entities to disclose the fair value of their financial instruments, both assets and liabilities recognized and not recognized in the balance sheet, for which it is practicable to estimate fair value.

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The following is a list of those assets and liabilities that are measured at fair value by hierarchy level as of June 30, 2014 and December 31, 2013:

	Fair Value Measurements Using
Assets and Liabilities at Fair Value	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 June 30, 2014	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	49,911	$	57,397	$	—	$	107,308
Municipal bonds	—		12,049		—		12,049
Corporate debt securities	—		221,070		—		221,070
Asset-backed securities	—		72,880		—		72,880
Cash and cash equivalents	34,671		—		—		34,671
Total Assets	$	84,582	$	363,396	$	—	$	447,978
Warrant liability	$	—	$	—	$	4,552	$	4,552
Total Liabilities	$	—	$	—	$	4,552	$	4,552

	Fair Value Measurements Using
Assets and Liabilities at Fair Value	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 December 31, 2013	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	49,484	$	57,122	$	—	$	106,606
Municipal bonds	—		11,933		—		11,933
Corporate debt securities	—		217,257		—		217,257
Asset-backed securities	—		73,292		—		73,292
Cash and cash equivalents	55,929		—		—		55,929
Total Assets	$	105,413	$	359,604	$	—	$	465,017
Warrant liability	$	—	$	—	$	6,371	$	6,371
Total Liabilities	$	—	$	—	$	6,371	$	6,371

The following is a roll-forward of Level 3 liabilities measured at fair value for the six months ended June 30, 2014 and the year ended December 31, 2013:

Level 3 Instruments Only	Warrant Liability
Six Months Ended June 30, 2014	(In Thousands)
Balance, January 1, 2014	$	6,371
Change in fair value of warrant liability included in earnings	(1,769		)
Gain on settlement of warrants	(37		)
Issuance of common stock on warrant exercise	(13		)
Balance, June 30, 2014	$	4,552

Level 3 Instruments Only	Warrant Liability
Year Ended December 31, 2013	(In Thousands)
Balance, January 1, 2013	$	4,842
Change in fair value of warrant liability included in earnings	1,529
Balance, December 31, 2013	$	6,371

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We revalue the warrant liability quarterly using a Black-Scholes option-pricing model in combination with a binomial model and a Monte-Carlo simulation model used to value the pricing protection features within the warrant. As of June 30, 2014 the assumptions used in the option pricing model were as follows: a common stock price as of June 30, 2014 of $10.50, risk free interest rate of 2.02%, expected life of 6.58 years, expected volatility of 39.0%, and a dividend yield of 0%. The change in fair value is primarily attributable to a decline in the price of our common stock from December 31, 2013 to June 30, 2014.

The carrying value of other selected assets on our consolidated balance sheet approximates fair value.

5. Reserves for Insurance Claims and Claims Expenses

We establish claim reserves to recognize the estimated liability for insurance claims and claim expenses related to defaults on insured mortgage loans. Our method, consistent with industry practice, is to establish claim reserves only for loans in default. We have received our first notice of default ("NOD") within our primary insurance book in the second quarter of 2014 and have established a reserve for that NOD and for claims that we believe have been incurred but not reported ("IBNR") for the three and six months endedJune 30, 2014. For the year ended December 31, 2013 we established no claim or IBNR reserves. Additionally, we entered into a pool insurance transaction with Fannie Mae, effective September 1, 2013. For this pool transaction, any claim reserves potentially established would be in excess of the transaction's deductible, which represents the amount of claims absorbed by Fannie Mae before we are obligated to pay any claims under the policy. Due to the size of the deductible ($10.3 million), the low level of NODs reported through June 30, 2014 and the high quality of the loans, we have not established any pool reserves for claims or IBNR for the three and six months endedJune 30, 2014 or for the year ended December 31, 2013.

The following table provides a reconciliation of the beginning and ending reserve balances for insurance claims and claims expenses for the six months ended June 30, 2014 and 2013:

	Six Months Ended
	2014		2013
	(In Thousands)
Reserve at beginning of period	$	—	$	—
Claims incurred:
Claims and Claims expenses incurred in respect of default notices related to:
Current year	28		—
Prior years	—		—
Total claims incurred	28		—
Claims paid:
Claims and Claims Expenses paid in respect of default notices related to:
Current year	—		—
Prior years	—		—
Total claims paid	—		—
Reserve at end of period	$	28	$	—

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

6. Software and Equipment

Software and equipment includes capitalized software purchased in connection with the MAC Acquisition which had a fair value of $5.0 million at the date of acquisition, as well as software we have developed. Software and equipment, net of accumulated amortization and depreciation, as of June 30, 2014 and December 31, 2013 consist of the following:

	As of June 30,			As of December 31,
	2014			2013
	(In Thousands)
Software	$	17,617		$	14,140
Equipment	561			542
Leasehold improvements	904			141
Subtotal	19,082			14,823
Accumulated amortization and depreciation	(8,910		)	(5,947		)
Software and equipment, net	$	10,172		$	8,876

Amortization and depreciation expense for the three and six months ended June 30, 2014 and 2013 was $1.7 million, $3.0 million, $1.8 million and $1.8 million, respectively.

7. Intangible Assets and Goodwill

Intangible assets and goodwill consist of identifiable intangible assets and goodwill purchased in connection with the MAC Acquisition. Intangible assets and goodwill, net, as of June 30, 2014 and December 31, 2013, consist of the following:

As of June 30, 2014 and December 31, 2013	(In Thousands)		Expected Lives
Goodwill	$	3,244	Indefinite
State licenses	260		Indefinite
GSE applications	130		Indefinite
Total Intangible Assets and Goodwill	$	3,634

We test goodwill and intangibles for impairment in the third and fourth quarter, respectively, of every year, or more frequently if we believe indicators of impairment exist. We have not identified any impairments of goodwill or impairments of indefinite-lived intangibles as of June 30, 2014.

8. Income Taxes

We are a U.S. taxpayer and are subject to a statutory U.S. federal corporate income tax rate of 35%. Our holding company files a consolidated U.S. federal and various state income tax returns on behalf of itself and its subsidiaries. Our effective income tax rate on our pre-tax loss was 9.2% for the three months ended June 30, 2014, compared to 0.0% for the comparable 2013 period. Our effective income tax rate on our pre-tax loss was 4.4% for the six months ended June 30, 2014, compared to 0.0% for the comparable 2013 period.

The income tax benefit of $1.3 million for the six months ended June 30, 2014 is related to the tax effects of unrealized gains credited to other comprehensive income ("OCI"). Generally, the amount of tax expense or benefit allocated to continuing operations is determined without regard to the tax effects of other categories of income or loss, such as OCI. However, an exception to the general rule is provided in ASC 740-20-45-7 when there is a pre-tax loss from continuing operations and there are items charged or credited to other categories, including OCI, in the current year. The intra-period tax allocation rules related to items charged or credited directly to OCI can result in disproportionate tax effects that remain in OCI until certain events occur. As a result of a reduction in unrealized losses credited directly to OCI during the six months ended June 30, 2014, approximately $2.7 million of tax provision expense has been netted with current year unrealized gains in OCI, and $1.3 million of tax provision benefit was allocated to the income tax provision for continuing operations. Other benefits from income taxes were eliminated or reduced by the recognition of a full valuation allowance which was recorded to reflect the amount of the deferred taxes that may not be realized.

As of June 30, 2014 and December 31, 2013, we have a net deferred tax liability of $0.1 million as a result of the acquisition of indefinite-lived intangibles in the MAC Acquisition for which no benefit has been reflected in the acquired net operating loss carry forwards. The tax liability incurred at the acquisition is recorded as an increase in goodwill.

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

9. Share Based Compensation

A summary of option activity under our 2012 Stock Incentive Plan during the quarters ended June 30, 2014 and June 30, 2013 is as follows:

	Shares		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value per Share
	(Shares in Thousands)
Options outstanding at December 31, 2013	3,063		$	10.31	$	3.98
Options granted	710		12.28		4.95
Options exercised	(109	)	10.00		3.85
Options forfeited	(64	)	11.16		4.37
Options outstanding at June 30, 2014	3,600		$	10.69	$	4.17

	Shares		Weighted Average Exercise Price		Weighted Average Grant Date Fair Value per Share
	(Shares in Thousands)
Options outstanding at December 31, 2012	2,547		$	10.00	$	3.86
Options granted	532		11.78		4.56
Options forfeited	(10	)	10.00		3.84
Options outstanding at June 30, 2013	3,069		$	10.31	$	3.98

As of June 30, 2014, there were 109 thousand options exercised and 1.6 million options were fully vested and exercisable. The weighted average exercise price for the fully vested and exercisable options was $10.21. The remaining weighted average contractual life of options fully vested and exercisable as of June 30, 2014 was 7.8 years. The aggregate intrinsic value for fully vested and exercisable options was $0.7 million as of June 30, 2014. The fair value of option grants to employees is determined based on a Black-Scholes simulation model at the date of grant.

A summary of RSU activity in the plan during the six months ended June 30, 2014 and June 30, 2013 is as follows:

	Shares		Weighted Average Grant Date Fair Value per Share
	(Shares in Thousands)
Non-vested restricted stock units at December 31, 2013	1,242		$	7.75
Restricted stock units granted	359		11.60
Restricted stock units vested	(295	)	8.23
Restricted stock units forfeited	(36	)	9.29
Non-vested restricted stock units at June 30, 2014	1,270		$	8.68

	Shares		Weighted Average Grant Date Fair Value per Share
	(Shares in Thousands)
Non-vested restricted stock units at December 31, 2012	1,429		$	7.35
Restricted stock units granted	82		11.75
Restricted stock units vested	(262	)	6.79
Restricted stock units forfeited	—		—
Non-vested restricted stock units at June 30, 2013	1,249		$	7.76

At June 30, 2014, the 1.3 million shares of non-vested RSUs consisted of 0.5 million shares that are subject to both a market and service condition and 0.8 million shares that are subject only to service conditions. The non-vested RSUs subject to both a market

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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

and service condition vest in one-half increments upon the achievement of certain market price goals and continued service. Non-vested RSUs subject only to a service condition vest over a service period ranging from 1 to 3 years. The fair value of RSUs subject to market and service conditions is determined based on a Monte Carlo simulation model at the date of grant. The fair value of RSUs subject only to service conditions are valued at our stock price on the date of grant less the present value of anticipated dividends, which is $0.

On May 8, 2014 we held our annual shareholder meeting. Our shareholders voted to approve our 2014 Omnibus Incentive Plan, which authorizes us to make 4 million shares of our class A common stock available for grant. These shares may be either authorized but unissued shares or treasury shares.

10. Warrants

We issued 992.0 thousand warrants, to FBR and the former stockholders of MAC Financial Ltd., upon the completion of our Private Placement and in conjunction with the MAC Acquisition, respectively. Each warrant gave the holder thereof the right to purchase one share of common stock at an exercise price equal to $10.00. The warrants were issued with an aggregate fair value of $5.1 million.

Upon exercise of these warrants, the amounts will be reclassified from warrant liability to additional paid-in capital. During the first quarter of 2014, 7.8 thousand warrants were exercised and we issued 1.1 thousand Class A common shares via a cashless exercise. Upon exercise we reclassified the fair value of the warrants from warrant liability to additional paid in capital and recognized a gain of approximately $37 thousand.

We account for these warrants to purchase our common shares in accordance with ASC 470-20, Debt with Conversion and Other Options and ASC 815-40, Derivatives and Hedging - Contracts in Entity's Own Equity.

11. Litigation

On August 8, 2012, the Receiver of PMI filed the PMI Complaint against NMIH, NMIC and certain employees of the Company in California Superior Court, Alameda County. Effective July 1, 2014, we entered into a settlement agreement to settle the PMI Complaint. See Note 1, Organization and Basis of Presentation, Subsequent Events.

12. Statutory Information

Our insurance subsidiaries, NMIC and Re One, file financial statements in conformity with statutory basis accounting principles ("SAP") prescribed or permitted by the Wisconsin Office of the Commissioner of Insurance ("Wisconsin OCI"). NMIC's principal regulator is the Wisconsin OCI. Prescribed SAP includes state laws, regulations and general administrative rules, as well as a variety of publications of the National Association of Insurance Commissioners ("NAIC"). The Wisconsin OCI recognizes only statutory accounting practices prescribed or permitted by the state of Wisconsin for determining and reporting the financial condition and results of operations of an insurance company and for determining its solvency under Wisconsin insurance laws.

NMIC and Re One's combined statutory net loss, statutory surplus and contingency reserve as of and for the six months ended June 30, 2014 and for the year ended December 31, 2013 were as follows:

	June 30, 2014			December 31, 2013
	(In Thousands)
Statutory net loss	$	(24,637	)	$	(33,307	)
Statutory surplus	185,061			189,698
Contingency reserve	4,312			2,314

Under applicable Wisconsin law, as well as that of 15 other states, a mortgage guaranty insurer must maintain a minimum amount of statutory capital relative to the risk-in-force (Risk to Capital ratio or “RTC ratio”) in order for the mortgage guaranty insurer to continue to write new business. We refer to these requirements as the “RTC requirement.” While formulations of minimum capital may vary in each jurisdiction that has such a requirement, the most common measure applied allows for a maximum permitted RTC ratio of 25 to 1. Wisconsin and certain other states, including California and Illinois, apply a substantially similar requirement referred to as minimum policyholders position. Our operation plan filed with the Wisconsin OCI and other state insurance departments in connection with NMIC's applications for licensure includes the expectation that NMIH will downstream additional capital if needed so that NMIC does not exceed risk-to-capital ratios agreed to with those states. NMIC may in the future seek state insurance department approvals, as needed, of an amendment to our business plan to increase this ratio to the Wisconsin regulatory minimum of 25 to 1.

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NMI HOLDINGS, INC.

NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)

Certain states limit the amount of risk a mortgage guaranty insurer may retain on a single loan to 25% of the indebtedness to the insured and as a result the portion of such insurance in excess of 25% must be reinsured. NMIC and Re One have entered into a primary excess share reinsurance agreement effective August 1, 2012 and a facultative pool reinsurance agreement effective September 1, 2013, under which NMIC cedes premiums, loss reserves and claims to Re One on an excess share basis for any primary or pool policy which offers coverage greater than 25% on any loan insured thereunder. NMIC will use reinsurance provided by Re One solely for purposes of compliance with statutory coverage limits. Currently, NMIC has no other reinsurance agreements. During April 2013, NMIC wrote its first mortgage insurance policies and ceded premium and risk to Re One the following month.

As of June 30, 2013, NMIC had six policies in force totaling approximately $257 thousand of RIF, resulting in a non-meaningful RTC ratio. As of June 30, 2014, NMIC had $314 million in total risk-in-force with a RTC ratio that was less than 2:1, significantly below the GSE and state imposed financial requirements. The risk-to-capital calculation for each of our insurance subsidiaries, as well as our combined risk-to-capital calculation, as of June 30, 2014, is presented below.

As of June 30, 2014	NMIC			Re One		Combined
	(In Thousands)
Primary risk-in-force
Direct	$	220,949		$	—	$	220,949
Assumed	—			17,969		17,969
Ceded	(17,969		)	—		(17,969		)
Total primary risk-in-force	202,980			17,969		220,949
Pool risk-in-force (1)
Direct	93,090			—		93,090
Assumed	—			25,163		25,163
Ceded	(25,163		)	—		(25,163		)
Total pool risk-in-force	67,927			25,163		93,090
Total risk-in-force	270,907			43,132		314,039
Statutory policyholders' surplus	175,784			9,277		185,061
Statutory contingency reserve	3,604			708		4,312
Total statutory policyholders' position	$	179,388		$	9,985	$	189,373
Risk-to-Capital (2)	1.5:1			4.3:1		1.7:1

⁽¹⁾  Pool risk-in-force as shown in the table above is equal to the aggregate stop loss less a deductible.

⁽²⁾  Represents total risk-in-force divided by statutory policyholders' position which is the metric by which the majority of state insurance regulators will assess our capital adequacy. Additionally, pursuant to the 2013 Fannie Mae pool agreement, we are required to maintain the greater of (a) the risk-to-capital requirements outlined in Fannie Mae's January 2013 approval letter or (b) a risk-to-capital ratio of 18:1 on primary business plus statutory capital equal to the amount of net risk-in-force of the pool.

NMIH is not subject to any limitations on its ability to pay dividends except those generally applicable to corporations that are incorporated in Delaware, such as NMIH. Delaware corporation law provides that dividends are only payable out of a corporation's capital surplus or (subject to certain limitations) recent net profits. As of December 31, 2013, NMIH's capital surplus was approximately $463 million. NMIH assets, excluding investment in NMIC and Re One, were approximately $276 million at December 31, 2013 and were unencumbered by any debt or other subsidiary commitments or obligations. The insurance subsidiaries are both mono-line mortgage guaranty insurance companies, and the assets of each are dedicated only to the support of direct risk and obligations of each mortgage insurance entity. NMIC only writes direct mortgage guaranty insurance business and assumes no business from any other entity. Re One only assumes business from NMIC to allow NMIC to comply with statutory risk requirements. Neither NMIC nor Re One have subsidiaries, and therefore do not have risks and obligations that compete for its resources, and neither entity counts a subsidiary's asset in their admitted statutory assets.

The GSEs and state insurance regulators may restrict our insurance subsidiaries' ability to pay dividends to NMIH. In addition to the restrictions imposed during the GSE Approval and state licensing processes, the ability of our insurance subsidiaries to pay dividends to NMIH is limited by insurance laws of the State of Wisconsin and certain other states. Wisconsin law provides

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that an insurance company may pay out dividends without the prior approval of the Wisconsin OCI (“ordinary dividends”) in an amount, when added to other shareholder distributions made in the prior 12 months, not to exceed the lesser of (a) 10% of the insurer's surplus as regards to policyholders as of the prior December 31, or (b) its net income (excluding realized capital gains) for the twelve month period ending December 31 of the immediately preceding calendar year. In determining net income, an insurer may carry forward net income from the previous calendar years that has not already been paid out as a dividend. Dividends that exceed this amount are “extraordinary dividends,” which require prior approval of the Wisconsin OCI. As of December 31, 2013, the amount of restricted net assets held by our consolidated insurance subsidiaries totaled approximately $193 million of NMIH's consolidated net assets of $463 million. The amount of restricted assets used to determine any dividend to NMIH, once all restrictions expire, would be computed under SAP which may differ from the amount of restricted assets computed under GAAP.

22

Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations

The following analysis should be read in conjunction with our unaudited consolidated financial statements and the notes thereto included in this report and our audited financial statements, notes thereto and “Management’s Discussion and Analysis of Financial Condition and Results of Operations” included in our Annual Report on Form 10-K for the year ended December 31, 2013, for a more complete understanding of our financial position and results of operations. In addition, investors should review the “Cautionary Note Regarding Forward-Looking Statements” above and the “Risk Factors” detailed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2013 and in Item 1A of Part II of our Quarterly Reports on Form 10-Q filed in 2014, including this Quarterly Report on Form 10-Q, for a 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. Our results of operations for interim periods are not necessarily indicative of results to be expected for the full year or for any other period.

Overview

NMI Holdings, Inc. ("NMIH" or the "Company") was formed in May 2011 and, through its subsidiaries, provides private mortgage guaranty insurance (which we refer to as "mortgage insurance" or "MI"). As used in this report, "we" and "our" refer to NMIH's consolidated operations. Our primary insurance subsidiary, National Mortgage Insurance Corporation ("NMIC"), is a qualified MI provider on loans purchased by Fannie Mae and Freddie Mac (collectively the “GSEs”) and is currently licensed in all 50 states and D.C. to issue mortgage guaranty insurance. Our reinsurance subsidiary, National Mortgage Reinsurance Inc One (“Re One”), solely provides reinsurance to NMIC on certain loans insured by NMIC, as described in Note 12, Statutory Information, above. On November 8, 2013, we filed a final prospectus announcing the sale of approximately 2.1 million shares of common stock through our IPO. Following our IPO, and to meet our obligations under the Registration Rights Agreement, we filed a final prospectus on December 9, 2013 registering 51,101,434 Class A common shares that had previously been issued during our Private Placement.

MI protects mortgage lenders from all or a portion of default-related losses on residential mortgage loans made to home buyers who generally make down payments of less than 20% of the home’s purchase price. By protecting lenders and investors from credit losses, we help facilitate the availability of mortgages to prospective, primarily first-time, U.S. home buyers, thus promoting homeownership and helping to revitalize our residential communities. MI also facilitates the sale of these mortgage loans in the secondary mortgage market, most of which are sold to Fannie Mae and Freddie Mac. We are one of seven companies in the U.S. who offer MI. Our business strategy is to become a leading national MI company with our principal focus on writing insurance on high quality, low down payment residential mortgages in the United States.

We believe the MI industry has significant barriers to entry due to the substantial capital necessary to fund operations and satisfy GSE requirements, the need for a customer-integrated operating platform capable of issuing and servicing mortgage insurance policies, the competitive positions and established customer relationships of existing mortgage insurance providers, and in order to conduct MI business nationwide, the need to obtain and maintain insurance licenses in all 50 states and D.C. Additionally, the resource commitment required by mortgage originators, and larger lenders in particular, to connect to a new mortgage insurance platform, such as ours, is significant, and absent a critical need, such as the capital constraints in the MI industry during the financial crisis, they have historically, in our view, been reluctant to make such an investment. We were formed at a time when the severe dislocation in the MI industry caused by the financial crisis created a need for newly capitalized mortgage insurers and this has facilitated our efforts to establish relationships with lenders. To date, we believe we have successfully navigated the Company through many of these barriers in order to start our insurance business.

Following our formation, we focused our efforts on organizational development, capital raising and other start-up related activities. Our efforts to build our MI business have included, among other things, securing GSE approval, obtaining insurance licenses in all 50 states and D.C., building an executive management team and hiring other key officers and directors and staff, building our operating processes, and designing and developing our business and technology applications and environment and infrastructure. In 2014, we continue to make progress achieving our goals, through the addition of new customers and the attainment of our goal of becoming licensed nationwide by obtaining a certificate of authority in Wyoming in April 2014. Since we began writing MI in April 2013, we have become a fully operational MI company, with $939.8 million of primary IIF and $4.9 billion of pool IIF as of June 30, 2014 compared to $161.7 million of primary IIF and $5.1 billion of pool IIF as of December 31, 2013. As of June 30, 2014, the Company had primary RIF of $220.9 million compared to primary RIF of $36.5 million as of December 31, 2013. Pool RIF as of June 30, 2014 and December 31, 2013 was $93.1 million.

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NMIC primarily differentiates itself from its competitors by underwriting all loans it insures either prior to or post close, which permits us to provide loan originators and aggregators with 12-month rescission relief protection, thereby giving our customers dependable service and consistent confidence of coverage. We have established risk management controls throughout our organization that we believe will support our continued financial strength. As a newly capitalized mortgage insurer, we have the ability to write new business without the burden of risky legacy exposures and believe our current capital supports our current business writing strategy, while staying within the regulatory guidelines imposed by state insurance departments and the GSEs.

On July 10, 2014, the FHFA released for public input the proposed PMIERs. The draft PMIERs represent the standards by which private mortgage insurers are eligible to provide mortgage insurance on loans owned or guaranteed by Fannie Mae and Freddie Mac. We believe that the proposed eligibility requirements for private mortgage insurers will help restore confidence in an industry affected by the recent housing crisis. We also believe a strong and financially sustainable private mortgage insurance industry is a key component of a healthy residential mortgage market and that NMIC is well positioned under the PMIERs to continue to serve the growing demand for private MI and to fully comply with the new financial requirements within the transition time period, which is described below.

Our headquarters are located in Emeryville, California and our website is www.nationalmi.com. Our website and the information contained on or accessible through our website are not incorporated by reference into this report.

Conditions and Trends Impacting Our Business

We discuss below the following conditions and trends that have impacted or are expected to impact our business.

•Customer Development

•New Insurance Written, Insurance in Force and Risk in Force

•Consolidated Results of Operations

•Holding Company Liquidity and Capital Resources

•Capital Position of Our Insurance Subsidiaries

•Consolidated Investment Portfolio and Other Factors that Impact Our Consolidated Results

•Proposed PMIERs

•GSE Approval Conditions and GSE Reform

•Competition

•Other Items

Customer Development

We organize our sales and marketing efforts based on our national and regional customer segmentation. Our sales strategy is focused on attracting as customers mortgage originators in the United States that fall into two distinct categories, which we refer to as "National Accounts" and "Regional Accounts," discussed below. Since April 2013, we have increased our customer base to include some of the largest loan originators in the U.S. We expect to continue to add new lenders to our customer base throughout the remainder of 2014. In addition to adding new customers, we believe our existing customers will allocate more of their business to us for placement of our MI.

We define National Accounts as the most significant residential mortgage originators as determined by volume of their own originations as well as volume of insured business they may acquire from other originators. These National Accounts generally originate loans through their retail channels as well as purchase loans originated by other entities, primarily mortgage originators who we would classify as Regional Accounts, as described below. National Accounts may sell their loans to the GSEs or private label secondary markets or securitize the loans themselves. We currently classify approximately 40 mortgage originators and/or aggregators as National Accounts. During the six months ended June 30, 2014, six of these National Accounts generated NIW, and as of June 30, 2014, we had approved master policies with 22 National Accounts. We continue to make progress with the remaining National Accounts.

The Regional Accounts originate mortgage loans on a local or regional level throughout the country. Some of these Regional Accounts have origination platforms across multiple regions; however, their primary lending focus is local. They sell the majority of their originations to National Accounts, but Regional Accounts may also retain loans in their portfolios or sell portions of their production directly to the GSEs. During the six months ended June 30, 2014, 96 of these Regional Accounts generated NIW, and

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as of June 30, 2014, we had approved master policies with 543 of these Regional Accounts. We believe we continue to make progress with the remaining Regional Accounts.

The tables below show the number of customers with approved master policies and the number of those customers generating NIW, by National and Regional Accounts, for the last five completed fiscal quarters.

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Additionally, we have made significant progress in our efforts to increase our correspondent approvals and our access to regional accounts.

*Top Residential Correspondent Lenders in Q1 2014 as defined by National Mortgage News. As of March 31, 2014 there were 39 lenders on the list.

New Insurance Written, Insurance in Force and Risk in Force

NMIC began writing MI in April 2013. Primary insurance may be written on a flow basis, in which loans are insured in individual, loan-by-loan transactions, or may be written on a bulk basis, in which each loan in a portfolio of loans is individually insured in a single, bulk transaction. MI may also be written in a pool policy, where a group of loans (or pool) are insured under a single contract. Pool insurance may have a stated aggregate loss limit for a pool of loans and may also have a deductible under which no losses are paid by the insurer until losses on the pool of loans exceed the deductible.

During the quarter ended June 30, 2014, we had primary NIW of $429.9 million, compared to primary NIW of $354.3 million during the quarter ended March 31, 2014. We have not written any new pool insurance in 2014. Our total NIW of $5.3 billion for the year ended December 31, 2013 consisted almost entirely of pool insurance written under our Fannie Mae pool agreement, which comprised $5.2 billion of the total NIW.

As of June 30, 2014, NMIC had primary IIF of $939.8 million and pool IIF of $4.9 billion and total RIF of $314.0 million, consisting of $220.9 million of primary RIF, representing insurance on 3,865 loans, and pool RIF of $93.1 million, representing insurance on approximately 21,000 loans. As of December 31, 2013, NMIC had primary IIF of $161.7 million and pool IIF of $5.1 billion and total RIF of $129.6 million, consisting of primary RIF of $36.5 million and pool RIF of $93.1 million. We expect NMIC's primary IIF and RIF to significantly increase over the coming months as our operations continue to mature.

Fannie Mae Pool Transaction

Effective September 1, 2013, NMIC entered into an agreement with Fannie Mae, pursuant to which NMIC initially insured approximately 22,000 loans with IIF of $5.2 billion (as of September 1, 2013).  We receive monthly premiums from Fannie Mae for this transaction, which are recorded as written and earned in the month received. The agreement has a term of 10 years from September 1, 2013, the coverage effective date.

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The RIF to NMIC is $93.1 million, which represents the difference between a deductible payable by Fannie Mae on initial losses and a stop loss, above which, losses are borne by Fannie Mae. NMIC provides this same level of risk coverage over the term of the agreement. We are bound to counter-party requirements contained in the agreement that specify the amount of capital NMIC will need to maintain to support the agreement until the new PMIERs are effective, which we discuss below in "Proposed PMIERs." The capital we are required to maintain under the pool agreement is specified as the greater of the following:

a. the amount of required capital specified in our January 2013 approval letter from Fannie Mae ($150 million); or

b. the sum of:

i. 5.6% of net primary RIF, plus;

ii. for pool insurance, the lesser of

1. 5.6% of the RIF under the pool transaction, based upon loan level coverage, before application of the aggregate stop loss and deductible, or;

2. the aggregate stop loss amount, net of any deductible, for the pool transaction.

Although the agreement currently requires that NMIC hold at least $150 million of capital in total to support both pool and primary risk, the capital we are required to maintain under this agreement just to support the pool risk (under b.ii.) will decline over the 10-year term of the agreement as the loans in the pool amortize or as loans pay off. The amount calculated under ii.2. is equivalent to $93.1 million and remains the same over the term of the transaction. The current loan level RIF of the pool, as of June 30, 2014, is $1.69 billion, which, when multiplied by 5.6% per the calculation under b.ii.1, produces a capital requirement of $94.7 million. We expect that as the loans in the pool amortize or as loans payoff, the capital required in b.ii.1 will decline below the $93.1 million, which is constant and set at the effective date of the transaction, and as a result we will be required to hold a declining amount of capital against this transaction. If the draft PMIERs (discussed below) were put into place today, we expect that the amount of capital we would have to hold to support this particular pool transaction would be $44.1 million, a significant reduction from the current capital requirement under b.ii above.

Insurance Portfolio

We utilize certain risk principles that form the basis of how we originate primary NIW. First, we manage our portfolio credit risk by using several loan eligibility matrices which prescribe the maximum loan-to-value ("LTV") ratio, minimum borrower credit score, maximum loan size, property type and occupancy status of loans that we will insure. Our loan eligibility matrices, as well as all of our detailed underwriting guidelines, are contained in our Underwriting Guideline Manual that is publicly available on our website. Our eligibility criteria and underwriting guidelines are designed to mitigate the layered risk inherent in a single insurance policy. "Layered risk" refers to the accumulation of borrower, loan risk and property risk. For example, we have higher credit score and lower maximum allowed LTV requirements for riskier property types, such as investor properties, compared to owner-occupied properties.

Another tool we use to manage our credit risk is to underwrite every loan we insure, including loans submitted through our delegated channel. We believe the prevailing standard of other companies in the MI industry has been to conduct partial quality assurance testing of delegated underwritten loans. We believe the industry's practice has exacerbated the negative impact of the recent mortgage crisis on legacy mortgage insurers because their partial quality control reviews did not adequately prevent the issuance of mortgage insurance through their delegated channels on ineligible, poor quality loans. Our pricing policies also help mitigate credit risk in the form of higher premium rates for loan features or borrower characteristics associated with historically higher default rates.

We monitor the concentrations of the various risk attributes in our insurance portfolio. Our NIW and risk written for the quarter ended June 30, 2014 was made up of approximately 67% and 66%, respectively, of credit scores at or above 740. Generally, insuring loans made to borrowers with higher credit scores tends to result in a lower frequency of claims. Additionally, as of June 30, 2014, we believe our insurance portfolio is comprised of loans that are full documentation loans, and less than 1% of our RIF is above 95% LTV. As we continue to increase our insurance writings, we expect to continue to seek out and insure high credit quality mortgages. Since we recently began writing MI in April 2013, our portfolio does not yet reflect our expected distribution of LTVs, borrower credit scores, loan sizes, property types and occupancy statuses of loans that we expect to insure, as well as the concentrations within states and metropolitan statistical areas ("MSAs"). We believe we will move toward our expected distribution of these risk attributes in our insurance portfolio as we continue to write more business.

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Overview of NIW, IIF and RIF

A significant portion of our NIW in the first six months of 2014 was comprised of single premium policies. Our single premium polices are currently written in two ways: single premium policies written on a loan by loan basis (“Single”) and single premium policies written on loans aggregated and delivered by the lender in a single transaction (“Aggregated Single”). Prior to writing Aggregated Single policies, the lender solicits single premium bids from us and other private MI companies. Because of the lower acquisition cost, the competitive bidding process and traditionally higher FICO scores associated with these policies, Aggregated Single policies have a lower premium than our Single premium policies.

While our single premium policies (including Single and Aggregated Single) currently represent the majority of our NIW and IIF, we expect the mix of our policy type to change meaningfully in future quarters with an increasing percentage of monthly premium policies. Our current long term expectation is for our total single premium polices (including Single and Aggregated Single) to collectively represent ten to twenty percent of our NIW and IIF as we expand our customer base and our business develops.

The tables on the following pages provide information on our current IIF by different metrics for the periods presented, including weighted average premiums (in basis points), FICO distributions, LTVs, premiums written and earned, average loan sizes and geographic distribution.

The table below shows NIW, IIF, RIF, policies in force, the weighted-average coverage, loans in default and the risk in force on that defaulted loan, by quarter, for the last four quarters, for our primary book.

Primary	Quarter Ended
	June 30, 2014			March 31, 2014			December 31, 2013			September 30, 2013
	(Dollars in Thousands)
New insurance written	$	429,944		$	354,313		$	157,568		$	3,560
Insurance in force (end of period)	$	939,753		$	514,796		$	161,731		$	4,604
Risk in force (end of period)	$	220,949		$	115,467		$	36,516		$	1,196
Policies in force (end of period)	3,865			2,072			653			22
Weighted-average coverage (1)	23.5		%	22.4		%	22.6		%	26.0		%
Loans in default (count)	1			—			—			—
Risk in force on defaulted loans	$	100		$	—		$	—		$	—

⁽¹⁾  End of period RIF divided by IIF.

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The table below shows primary and pool IIF, NIW and premiums written and earned by policy type.

Primary and Pool
	As of and for the quarter ended June 30, 2014								As of and for the quarter ended March 31, 2014
	IIF		NIW		Premiums Written		Premiums Earned		IIF		NIW		Premiums Written		Premiums Earned
	(In Thousands)
Monthly	$	277,490	$	206,767	$	301	$	301	$	73,734	$	50,136	$	99	$	99
Single	125,056		97,037		2,086		224		28,020		26,518		535		56
Aggregated Single	537,207		126,140		1,292		196		413,042		277,659		3,150		355
Total Primary	939,753		429,944		3,679		721		514,796		354,313		3,784		510
Pool	4,936,751		—		1,372		1,372		5,028,677		—		1,394		1,394
Total	$	5,876,504	$	429,944	$	5,051	$	2,093	$	5,543,473	$	354,313	$	5,178	$	1,904

	As of and for the quarter ended December 31, 2013								As of and for the quarter ended September 30, 2013
	IIF		NIW		Premiums Written		Premiums Earned		IIF		NIW		Premiums Written		Premiums Earned
	(In Thousands)
Monthly	$	24,558	$	20,395	$	25	$	25	$	4,604	$	3,560	$	6	$	6
Single	1,790		1,790		47		7		—		—		—		—
Aggregated Single	135,383		135,383		1,572		166		—		—		—		—
Total Primary	161,731		157,568		1,644		198		4,604		3,560		6		6
Pool	5,089,517		—		1,414		1,414		5,171,664		5,171,664		476		476
Total	$	5,251,248	$	157,568	$	3,058	$	1,612	$	5,176,268	$	5,175,224	$	482	$	482

The tables below show the initial weighted average premium, in basis points, the weighted average FICO and the weighted average LTV, by policy type, for the quarter in which the policy was originated.

Weighted Average Premium
	June 30, 2014	March 31, 2014	December 31, 2013	September 30, 2013
	(Shown in Basis Points)
Monthly	58	56	64	66
Single	215	205	251	—
Aggregated Single	102	113	116	—

Weighted Average FICO
	June 30, 2014	March 31, 2014	December 31, 2013	September 30, 2013
Monthly	747	749	747	762
Single	746	752	735	—
Aggregated Single	758	759	759	—

Weighted Average LTV
	June 30, 2014		March 31, 2014		December 31, 2013		September 30, 2013
Monthly	93	%	92	%	93	%	92	%
Single	93		92		92		—
Aggregated Single	90		90		90		—

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The table below reflects our total NIW, IIF and RIF by FICO as of June 30, 2014.

Total Portfolio	NIW				IIF				RIF
	(Dollars in Thousands)
	As of June 30, 2014
>= 740	$	4,828,040	78.9	%	$	4,637,903	78.9	%	$	221,984	70.7	%
680 - 739	1,118,164		18.3		1,076,146		18.3		84,266		26.8
620 - 679	171,889		2.8		162,455		2.8		7,789		2.5
<= 619	—		—		—		—		—		—
Total	$	6,118,093	100.0	%	$	5,876,504	100.0	%	$	314,039	100.0	%

The table below reflects our primary NIW, IIF and RIF by FICO for the 2014 and 2013 books as of June 30, 2014.

Primary - 2014 Book	NIW				IIF				RIF
	(Dollars in Thousands)
	As of June 30, 2014
>= 740	$	527,289	67.2	%	$	523,941	67.2	%	$	121,540	65.7	%
680 - 739	238,307		30.4		237,685		30.5		58,656		31.7
620 - 679	18,661		2.4		18,492		2.3		4,796		2.6
<= 619	—		—		—		—		—		—
Total	$	784,257	100.0	%	$	780,118	100.0	%	$	184,992	100.0	%

Primary - 2013 Book	NIW *				IIF				RIF
	(Dollars in Thousands)
	As of June 30, 2014
>= 740	$	113,907	70.2	%	$	113,207	70.9	%	$	25,168	70.0	%
680 - 739	47,102		29.0		45,420		28.5		10,516		29.2
620 - 679	1,163		0.8		1,008		0.6		273		0.8
<= 619	—		—		—		—		—		—
Total	$	162,172	100.0	%	$	159,635	100.0	%	$	35,957	100.0	%

The table below reflects our pool NIW, IIF and RIF by FICO for the 2013 book as of June 30, 2014.

Pool - 2013 Book	NIW *				IIF				RIF
	(Dollars in Thousands)
	As of June 30, 2014
>= 740	$	4,186,844	81.0	%	$	4,000,755	81.0	%	$	75,276	80.9	%
680 - 739	832,755		16.1		793,041		16.1		15,094		16.2
620 - 679	152,065		2.9		142,955		2.9		2,720		2.9
<= 619	—		—		—		—		—		—
Total	$	5,171,664	100.0	%	$	4,936,751	100.0	%	$	93,090	100.0	%

* Represents total NIW for the year ended December 31, 2013.

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The tables below reflect our average primary loan size by FICO and the percentage of our RIF by loan type.

	June 30, 2014		December 31, 2013
Average Primary Loan Size by FICO	(In Thousands)
>= 740	$	247	$	253
680 - 739	236		237
620 - 679	222		194
<= 619	—		—

Percentage of RIF by Loan Type	Primary		Pool
As of June 30, 2014
Fixed	92.7	%	100.0	%
Adjustable rate mortgages:
Less than five years	0.2		—
Five years and longer	7.1		—
Total	100.0	%	100.0	%

The following chart reflects our RIF by LTV ratio. We calculate the LTV ratio of a loan as a percentage of the original loan amount to the original value of the property securing the loan. In general, the lower the LTV ratio the lower the likelihood of a default, and for loans that default, a lower LTV ratio generally results in a lower severity for any claim, as the borrower has a higher amount of equity in the property.

Total RIF by LTV	Primary					Pool
	RIF		% of Total LTV		Policy Count	RIF		% of Total LTV		Policy Count
As of June 30, 2014	(Dollars in Thousands)
95.01% and above	$	1,014	0.5	%	15	$	—	—	%	—
90.01% to 95.00%	115,061		52.1		1,737	—		—		—
85.01% to 90.00%	84,790		38.4		1,394	—		—		—
80.01% to 85.00%	20,084		9.0		719	—		—		—
80.00% and below	—		—		—	93,090		100.0		21,265
Total RIF	$	220,949	100.0	%	3,865	$	93,090	100.0	%	21,265

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The following charts show the distribution by state of our IIF and RIF, for both primary and pool insurance. We expect to maintain a diverse insurance portfolio, and we will carefully monitor and manage our exposure to risk written in any one state, in both our primary and pool writings. As of June 30, 2014, our IIF and RIF is more heavily concentrated in California, primarily as a result of the acquisition of new customers. With these new customers, we have placed our MI on a higher proportion of mortgage loans originated in California. The distribution of risk across the states as of the quarter ended June 30, 2014 is not necessarily representative of the geographic distribution we expect in the future. With our expectations that we will add a significant number of new customers as we grow and receive greater allocations of business from our existing customers, we believe we will have more flexibility to manage our state concentration levels. We expect that our insurance origination mix by state will be consistent with the overall distribution of mortgage originations in the United States that require mortgage insurance.

Top 10 Primary IIF and RIF by State		IIF		RIF
As of June 30, 2014
1.	California	21.3	%	21.3	%
2.	Texas	4.7		4.8
3.	Virginia	4.6		4.4
4.	Michigan	4.4		4.4
5.	Florida	4.1		4.3
6.	New Jersey	3.7		3.4
7.	Georgia	3.6		3.7
8.	Colorado	3.4		3.5
9.	Arizona	3.4		3.4
10.	North Carolina	3.3		3.5
	Total	56.5	%	56.7	%

Top 10 Pool IIF and RIF by State		IIF		RIF
As of June 30, 2014
1.	California	28.6	%	28.0	%
2.	Texas	5.4		5.5
3.	Colorado	3.9		3.9
4.	Washington	3.9		3.9
5.	Massachusetts	3.7		3.6
6.	Illinois	3.7		3.7
7.	Virginia	3.7		3.7
8.	New York	2.9		2.9
9.	Florida	2.8		2.8
10.	New Jersey	2.7		2.7
	Total	61.3	%	60.7	%

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Consolidated Results of Operations

	For the Three Months Ended June 30,						For the Six Months Ended June 30,
	2014			2013			2014			2013
Revenues	(In Thousands, except for share data)
Premiums written
Direct	$	5,051		$	1		$	10,229		$	1
Net premiums written	5,051			1			10,229			1
Increase in unearned premiums	(2,958		)	—			(6,232		)	—
Net premiums earned	2,093			1			3,997			1
Net investment income	1,468			1,407			2,957			1,817
Net realized investment gains	—			452			—			481
Gain (loss) from change in fair value of warrant liability	952			(1,114		)	1,769			(1,080		)
Gain from settlement of warrants	—			—			37			—
Total Revenues	4,513			746			8,760			1,219
Expenses
Insurance claims and claims expenses	28			—			28			—
Amortization of deferred policy acquisition costs	42			—			61			—
Other underwriting and operating expenses	18,595			17,020			37,877			29,445
Total Expenses	18,665			17,020			37,966			29,445
Loss before income taxes	(14,152		)	(16,274		)	(29,206		)	(28,226		)
Income tax benefit	(1,297		)	—			(1,297		)	—
Net Loss	(12,855		)	(16,274		)	(27,909		)	(28,226		)

	June 30, 2014		December 31, 2013
	(In Thousands)
Total investment portfolio	$	413,307	$	409,088
Cash and cash equivalents	34,671		55,929
Deferred policy acquisition costs, net	1,051		90
Software and equipment, net	10,172		8,876
Other assets	6,962		7,236
Total Assets	$	466,163	$	481,219
Reserve for insurance claims and claims expenses	$	28	$	—
Accounts payable and accrued expenses	8,494		10,052
Unearned premiums	7,679		1,446
Warrant liability	4,552		6,371
Current tax payable	1,367		—
Other liabilities	133		133
Total Liabilities	22,253		18,002
Total Shareholders' Equity	443,910		463,217
Total Liabilities and Shareholders' Equity	$	466,163	$	481,219

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Our financial results to date have been primarily driven by expenditures related to our business development activities, and to a lesser extent, by our investment activities. Although we expect our year-over-year expenses to increase as we grow our business, we ultimately expect that the majority of our operating expenses will be relatively fixed in the long term. As our business matures and we deploy the majority of our capital, including capital raised through equity or debt offerings, or through the use of reinsurance, we are targeting our expense ratio (expenses to premiums written) to fall into a range of 20% to 25%. Until our business matures, our expense ratio is expected to be significantly higher than this range given the low levels of premium written compared to our "fixed" costs customary to operating a mortgage insurance company. We believe that we will have an efficient expense structure providing us with greater flexibility. We do not expect to achieve operating profitability through at least 2014. Additionally, we are targeting an average unlevered return on equity in the mid-teens over time.

For the six months ended June 30, 2014, we had net premiums written of $10.2 million compared to net premiums written of $1 thousand for the six months ended June 30, 2013. For the three months ended June 30, 2014, we had net premiums written of $5.1 million compared to net premiums written of $1 thousand for the three months ended June 30, 2013. The principal driver of the increase in premiums written was the continued growth of our NIW since we began writing business in April 2013 and the significant development of our customer base.

For the quarter ended June 30, 2014, we had net premiums written of $5.1 million and net premiums earned of $2.1 million compared to net premiums written of $5.2 million and net premiums earned of $1.9 million for the quarter ended March 31, 2014. For the quarter ended June 30, 2014, we had net monthly premiums written and earned of $301.6 thousand compared to $99.0 thousand for the quarter ended March 31, 2014. We had net single premiums written and earned of $3.4 million and $0.4 million, respectively, for the quarter ended June 30, 2014 compared to net single premiums written and earned of $3.7 million and $0.4 million, respectively, for the quarter ended March 31, 2014. Net pool premiums written and earned of $1.4 million was flat quarter over quarter. We have not written any annual premiums through June 30, 2014. Despite higher NIW and premiums earned in the second quarter of 2014, premiums written were down slightly from the first quarter of 2014, because of lower single premium business.

As of June 30, 2014, we had 3,865 primary policies in force and approximately 21,000 certificates in force in our pool transaction compared to 653 primary policies in force and approximately 22,000 certificates in force in our pool transaction as of December 31, 2013.

We have incurred significant net operating losses since our inception. Our net losses were $27.9 million and $28.2 million for the six months ended June 30, 2014 and 2013, respectively. The primary drivers of the decrease in net losses between periods were the increase in premiums earned, the increase in net investment income, and a decrease in our warrant liability, offset by the continued hiring of management and staff personnel and external and professional costs. Premiums increased as we have added new customers and existing customers have allocated more business to us. We began investing our cash during the first quarter of 2013 and continued to invest and rebalance our portfolio into the second and third quarters of 2013. As a result, our net investment income was lower for the six months ended June 30, 2013 compared to the six months ended June 30, 2014. Our warrant liability decreased as a result of a decline in our stock price. Our net operating losses for the three months ended June 30, 2014 and 2013, respectively, were $12.9 million and $16.3 million, and are as a result of the same drivers for the six months ended.

Additionally, we entered into a two-year lease in July 2012 for our principal location of operations and in October 2013, extended the terms of this lease through October 31, 2017.

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Our total other underwriting and operating expenses for the six months ended June 30, 2014 were $37.9 million compared to $29.4 million for the six months ended June 30, 2013, driven primarily by expanding operations and the hiring of personnel. The following are the components of our other underwriting and operating expenses for the periods indicated:

	Three Months Ended				Six Months Ended
	June 30, 2014		June 30, 2013		June 30, 2014		June 30, 2013
	(In Thousands)
Payroll and related	$	8,754	$	7,460	$	18,947	$	13,589
Share-based compensation	2,370		3,846		4,701		6,859
Contract and professional services	3,270		2,029		6,913		3,622
Technology service expenses	1,005		1,147		2,080		2,043
Depreciation and amortization expenses	1,661		1,788		2,975		1,847
Other expenses	1,535		750		2,261		1,485
Total Other Underwriting and Operating Expenses	$	18,595	$	17,020	$	37,877	$	29,445

Employee compensation represents the majority of our operating expense, which includes both cash and share-based compensation. Our payroll and related expense was $18.9 million for the six months ended June 30, 2014 and $13.6 million for the six month period ended June 30, 2013. As part of our compensation plan, certain employees were granted stock options and RSUs under our 2012 Stock Incentive Plan. Our share-based compensation expense was $4.7 million for the six months ended June 30, 2014 and $6.9 million for the six month period ended June 30, 2013. The majority of our stock options and RSUs were awarded during 2012, with fewer awards in 2013 and 2014. The expense related to the 2012 grants is decreasing as the awards near their vesting term. Additionally, the expense from the 2012 grants has not been offset to the same degree by the expense related to the 2013 and 2014 grants, causing the overall share-based compensation expenses to decrease year over year. We account for our stock options and RSUs under the Financial Accounting Standards Board Accounting Standards Codification ("ASC") No. 718, Compensation — Stock Compensation (“ASC 718”), which requires all compensation expense from share-based payments to be measured and recognized in the financial statements at their grant date fair values. Our payroll and related expense was $8.8 million for the three months ended June 30, 2014 and $7.5 million for the three months ended June 30, 2013. The increase was driven by the addition of new employees.

Our contract and professional services expense increased from $3.6 million for the six months ended June 30, 2013 to $6.9 million for the six months ended June 30, 2014, largely as a result of legal expenses and settlement costs associated with the PMI litigation. See Part II, Item 1. "Legal Proceedings." Our depreciation and amortization expense increased to $3.0 million for the six months ended June 30, 2014 compared to $1.8 million for the six months ended June 30, 2013, primarily from the continued development of our technology platform which has resulted in placing more assets into service and depreciating those assets accordingly.

Our total assets, comprised largely of cash and investments, were $466.2 million at June 30, 2014 compared to total assets of $481.2 million at December 31, 2013. The reduction in 2014 compared to 2013 was driven by operating costs, partially offset by proceeds from our IPO and premium income.

Our accounts payable and accrued expenses were $8.5 million as of June 30, 2014 and $10.1 million at December 31, 2013. The decrease at June 30, 2014 was comprised primarily of accrued bonuses and accrued expenses which were paid during the first and second quarters of 2014.

As of June 30, 2014, we had approximately $448 million in cash and investments of which $239 million was held at NMIH. As of June 30, 2014, the amount of restricted net assets held by our consolidated insurance subsidiaries totaled approximately $194 million of our consolidated net assets of approximately $444 million.

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

	For the Six Months Ended June 30,
	2014			2013
Net Cash (Used in) Provided by:	(In Thousands)
Operating Activities	$	(18,025	)	$	(22,939	)
Investing Activities	(3,247		)	(435,398		)
Financing Activities	14			(1,578		)
Net (Decrease) Increase in Cash and Cash Equivalents	$	(21,258	)	$	(459,915	)

Cash used in operating activities for the six months ended June 30, 2014 was lower compared to the same period in 2013 due primarily to the collection of premiums offset by the continued hiring of management and staff personnel and professional costs incurred in conjunction with litigation support, which was partially offset by payments received from insurance carriers related to litigation costs incurred.

Cash used in investing activities for the six months ended June 30, 2014 was lower compared to the same period in 2013 as a result primarily of investing our cash holdings in fixed income securities in the first quarter of 2013. We had very little movement in our investment portfolio during the first half of 2014, as during 2013, we balanced and optimized our portfolio consistent with our investment policy.

Cash from financing activities for the six months ended June 30, 2014 consisted primarily of taxes paid related to the net share settlement of equity awards offset by the proceeds from option exercises. During the same period in 2013, cash flows from financing also consisted primarily of taxes paid related to the net share settlement of equity awards.

We expect that cash and investments and projected cash flows from operations will provide us with sufficient liquidity to fund our anticipated growth by providing capital to increase our insurance company surplus as well as for payment of operating expenses through 2015, at which point we currently expect to consider various capital options. We anticipate that as our IIF grows, the premium revenue we receive will increase. We expect to manage our fixed operating expenses so that they grow at a much slower rate than sales over the coming years. Following 2014, as we anticipate an increase in our volume of MI business, we expect to see our costs increase primarily within underwriting and sales; however, we expect to see only marginal increases in what we consider our corporate related costs (i.e., management, finance, legal, risk and information technology) as these areas of the business were required to be in place before we could generate significant revenue. We believe we have in place the majority of our fixed infrastructure that will allow us to successfully service our existing business and as we grow we expect only marginal increases in this infrastructure. We may choose to generate additional liquidity through the issuance of a combination of debt or equity securities, as well as consider our reinsurance options.

Holding Company Liquidity and Capital Resources

NMIH serves as the holding company for our insurance subsidiaries and does not have any significant operations of its own. NMIH's principal liquidity demands include funds for: (i) payment of certain corporate expenses and reimbursable expenses of its insurance subsidiaries; (ii) capital support for its insurance subsidiaries; (iii) potential payments to the IRS; and (iv) the payment of dividends, if any, on its common stock.

NMIH's future capital requirements depend on many factors, including NMIC's ability to successfully write new business and establish premium rates at levels sufficient to cover claims and operating costs. To the extent that the funds generated by our ongoing operations and capitalization are insufficient to fund future operating requirements, we may need to raise additional funds through financing activities or curtail our growth and reduce our expenses.

On March 26, 2014, NMIH contributed $20 million in cash to NMIC. In order to support a minimum surplus of $150 million and maintain a risk-to-capital ratio under 15 to 1 through December 31, 2015 at NMIC, we expect NMIH will make additional capital contributions to NMIC from time-to-time. NMIH could be required to provide additional capital support for NMIC and Re One if additional capital is required pursuant to state insurance laws and regulations, by the GSEs or the rating agencies.

In addition to investment income, dividends from NMIC and permitted payments under our tax- and expense-sharing arrangements with our subsidiaries are NMIH's principal sources of operating cash. The expense-sharing arrangements between NMIH and its insurance subsidiaries, as amended, have been approved by the Wisconsin OCI, but such approval may be changed or revoked at any time. NMIC's ability to pay dividends to NMIH is subject to various conditions imposed by the GSEs and by insurance regulations requiring insurance department approval. In general, dividends in excess of prescribed limits are deemed

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“extraordinary” and require insurance regulatory approval. Additionally, under agreements with the GSEs, NMIC is not permitted to pay shareholder dividends until December 31, 2015 and under agreements with various state insurance regulators, is not permitted to pay shareholder dividends until January 2016.

Our MI companies' principal operating sources of liquidity are premiums that we receive from policies and income generated by our investment portfolio. Our MI companies' primary liquidity needs include the payment of claims on our MI policies, operating expenses, investment expenses and other costs of our business.

NMIH is not subject to any limitations on its ability to pay dividends except those generally applicable to corporations, such as NMIH, that are incorporated in Delaware. Delaware corporation law provides that dividends are only payable out of a corporation's capital surplus or (subject to certain limitations) recent net profits. As of June 30, 2014, NMIH's shareholders' equity was approximately $444 million.

Capital Position of Our Insurance Subsidiaries

In addition to the requirement that NMIC adhere to certain minimum capital requirements, as described in Note 12, Statutory Information, NMIC is also subject to state regulatory minimum capital requirements based on its insured RIF. While formulations of this minimum capital may vary in each jurisdiction, the most common measure allows for a maximum permitted risk-to-capital ratio of 25 to 1. As a new entrant to the MI business, our insurance writings to date have been minimal compared to the volume of insurance we expect to write as our business grows in the near future.

As of June 30, 2014, NMIC's primary RIF was approximately $220.9 million representing insurance on a total of 3,865 policies in force and pool risk-in-force was approximately $93.1 million representing insurance on a total of approximately 21,000 loans. Based on NMIC's reported total statutory capital of $179 million at June 30, 2014, NMIC's risk-to-capital ratio was 1.5:1, significantly below the contractual and regulatory maximum risk-to-capital thresholds. As our insurance writings grow and our RIF increases, our risk-to-capital ratio will increase and NMIC's risk-to-capital metrics will become more important to an evaluation of its compliance with all of the capital requirements to which it is subject. The GSEs and state insurance regulators are currently examining their respective capital requirements to determine whether in light of the recent financial crisis, changes are needed to more accurately assess mortgage insurers' ability to withstand stressful economic conditions. As discussed below under -Proposed PMIERs, the FHFA recently announced updated GSE mortgage insurer eligibility requirements that include new financial requirements. These new financial requirements prescribe a risk-based capital methodology whereby the amount of capital required to be held against each insured loan is determined based on certain risk characteristics, such as FICO, vintage (year of origination), performing vs. non-performing, LTV and other risk features. Based on this, a capital charge is calculated, whereas the state and GSE-imposed risk-to-capital ratio requirements do not distinguish between the type or quality of the risk. As a result, we believe the proposed PMIERs provide a more sound formulation of capital that needs to be held to support an MI's current risk-in-force. For more discussion, see "- Proposed PMIERs," below.

The NAIC has formed a working group to explore, among other things, whether certain states' statutory capital requirements applicable to mortgage insurers should be overhauled. We, along with other MI companies are working with the Mortgage Guaranty Insurance Working Group of the Financial Condition (E) Committee of the NAIC. The Working Group will determine and make a recommendation to the Financial Condition (E) Committee of the NAIC as to what changes, if any, the Working Group believes are necessary to the solvency regulation for MI companies, including changes to the Mortgage Guaranty Insurers Model Act (Model #630). We have provided feedback to the Working Group since early 2013, and we support more robust capital standards and continue to advocate for a strong capital model. The discussions are ongoing and the ultimate outcome of these discussions and any potential actions taken by the NAIC cannot be predicted at this time. However, given our current strong capital position and having no exposure to risk written in the 2005 through 2008 book years (which we consider to be some of the poorest performing books of business ever written by the MI industry), we believe that NMIC will be well positioned to comply with new capital requirements proposed by the NAIC.

Consolidated Investment Portfolio and Other Factors That Impact Our Consolidated Results

Our net investment income for the six months ended June 30, 2014 was $3.0 million compared to $1.8 million for the six months ended June 30, 2013. During the first quarter of 2013, we began investing our cash holdings in fixed income securities which provide a higher yield than cash. We continued to invest our cash holdings in fixed income securities during the remainder of 2013. As of June 30, 2014, we believe our portfolio conforms with our investment guidelines. The principal factors affecting our investment income include the size of our portfolio and its net yield. As measured by amortized cost (which excludes changes in fair market value, such as those resulting from changes in interest rates), the size of our investment portfolio is mainly a function of capital raised, cash generated from (or used in) operations, such as net premiums received, and investment earnings.

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Consistent with Wisconsin law, our investment policies emphasize preservation of capital, as well as total return. Based on our guidelines, our current investment portfolio is comprised entirely of cash and cash equivalents and fixed-income securities, all of which are investment grade and rated “A-” or higher. Our policy guidelines contain limits on the amount of credit exposure to any one issue, issuer and type of instrument. We expect to preserve the liquidity of our portfolio through diversification and investment in publicly traded securities. We plan to maintain a level of liquidity commensurate with our perceived business outlook and the expected timing, direction and degree of changes in interest rates.

Following GSE Approval, we invested our investment portfolio according to our investment guidelines. The pre-tax net investment income yield was approximately 1.1%, including unrealized gains, for the first six months ended June 30, 2014. The pre-tax investment income yields are calculated based on the market value of the investments. We believe that the yield on our investment portfolio likely will change over time based on potential changes to the interest rate environment, the duration or mix of our investment portfolio or other factors.

The sectors of our investment portfolio, including cash and cash equivalents, at June 30, 2014 appear in the table below:

		Percentage of Portfolio's Fair Value
1.	Corporate debt securities	49	%
2.	U.S. Treasury securities and obligations of U.S. government agencies	24
3.	Asset-backed securities	16
4.	Cash and cash equivalents	9
5.	Municipal bonds	2
	Total	100	%

The ratings of our investment portfolio at June 30, 2014 were:

	Investment Portfolio Ratings
AAA	29	%
AA	11
A	60
Investment grade	100
Below investment grade	—
Total	100	%

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The amortized cost, gross unrealized gains and losses and fair value of the investment portfolio at June 30, 2014 and December 31, 2013 are shown below.

As of June 30, 2014	Amortized Cost		Unrealized Gains		Unrealized Losses (1)			Fair Value
	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	107,929	$	29	$	(650	)	$	107,308
Municipal bonds	12,013		54		(18		)	12,049
Corporate debt securities	221,111		1,072		(1,113		)	221,070
Asset-backed securities	72,763		396		(279		)	72,880
Total Investments	$	413,816	$	1,551	$	(2,060	)	$	413,307

As of December 31, 2013	Amortized Cost		Unrealized Gains		Unrealized Losses (1)			Fair Value
	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	108,067	$	—	$	(1,461	)	$	106,606
Municipal bonds	12,017		1		(85		)	11,933
Corporate debt securities	221,899		157		(4,799		)	217,257
Asset-backed securities	74,152		114		(974		)	73,292
Total Investments	$	416,135	$	272	$	(7,319	)	$	409,088

⁽¹⁾  There were no other-than-temporary impairment losses recorded in other comprehensive income at June 30, 2014 or December 31, 2013.

The amortized cost and fair values of available for sale securities at June 30, 2014 and December 31, 2013, by contractual maturity, are shown below.

As of June 30, 2014	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	2,674	$	2,675
Due after one through five years	265,261		264,556
Due after five through ten years	57,718		57,843
Due after ten years	15,400		15,353
Asset-backed securities	72,763		72,880
Total Investments	$	413,816	$	413,307

As of December 31, 2013	Amortized Cost		Fair Value
	(In Thousands)
Due in one year or less	$	—	$	—
Due after one through five years	260,855		257,501
Due after five through ten years	65,687		63,440
Due after ten years	15,441		14,855
Asset-backed securities	74,152		73,292
Total Investments	$	416,135	$	409,088

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Fair Value Measurements

Fair value measurements for items measured at fair value included the following as of June 30, 2014 and December 31, 2013:

	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 June 30, 2014	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	49,911	$	57,397	$	—	$	107,308
Municipal bonds	—		12,049		—		12,049
Corporate debt securities	—		221,070		—		221,070
Asset-backed securities	—		72,880		—		72,880
Cash and cash equivalents	34,671		—		—		34,671
Total Assets	$	84,582	$	363,396	$	—	$	447,978
Warrant liability	—		—		4,552		4,552
Total Liabilities	$	—	$	—	$	4,552	$	4,552

	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 December 31, 2013	(In Thousands)
U.S. Treasury securities and obligations of U.S. government agencies	$	49,484	$	57,122	$	—	$	106,606
Municipal bonds	—		11,933		—		11,933
Corporate debt securities	—		217,257		—		217,257
Asset-backed securities	—		73,292		—		73,292
Cash and cash equivalents	55,929		—		—		55,929
Total Assets	$	105,413	$	359,604	$	—	$	465,017
Warrant liability	—		—		6,371		6,371
Total Liabilities	$	—	$	—	$	6,371	$	6,371

There were no transfers of securities between Level 1 and Level 2 during the first and second quarter of 2014 or the year 2013.

The fair value of the warrants issued to FBR and MAC Financial Ltd. (which are now held by the former stockholders of MAC Financial Ltd. as a result of its liquidation) was estimated on the date of grant using the Black-Scholes option-pricing model, including consideration of any potential additional value associated with pricing protection features. The volatility assumption used, 39.0%, was derived from the historical volatility of the share price of a range of publicly-traded companies with business types similar to ours. No allowance was made for any potential illiquidity associated with the private trading of our shares. We revalue the warrant liability quarterly using a Black-Scholes option-pricing model in combination with a binomial model and a Monte-Carlo simulation model to value the pricing protection features within the warrant. As of June 30, 2014, the assumptions used in the option pricing model were as follows: a common stock price as of June 30, 2014 of $10.50, risk free interest rate of 2.02%, expected life of 6.58 years and a dividend yield of 0%. The gain from change in fair value for the six months ending June 30, 2014 of approximately $1.8 million is primarily due to a decrease in the price of our common stock as compared to December 31, 2013. The warrants have an exercise price of $10.00. The remaining contractual term on the warrants is 7.8 years.

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Share Based Compensation

The 2012 Stock Incentive Plan (the “Plan”) was approved by the Board on April 16, 2012 and authorized 5.5 million shares to be reserved for issuance under the Plan, with 3.85 million shares available for stock options and 1.65 million shares available for RSU grants. Options granted under the Plan are non-qualified stock options and may be granted to employees, directors and other key persons of the Company. The exercise price per share for the common stock covered by the Plan shall be determined by the Board at the time of grant, but shall not be less than the fair market value on the date of the grant. The term of the stock option grants will be fixed by the Board, but no stock option shall be exercisable more than 10 years after the date the stock option is granted. The vesting period of the stock option grants will also be fixed by the Board at the time of grant and generally is for a three year period. The estimated grant date fair values of the stock options granted during 2014 were calculated using a Black-Scholes valuation model.

The RSUs granted in 2014 were valued at our stock price on the date of grant less the present value of anticipated dividends, which is $0. As of June 30, 2014, there was $5.5 million of total unrecognized compensation cost related to non-vested RSUs compared to $6.4 million as of June 30, 2013.

On May 8, 2014 we held our annual shareholder meeting. Our shareholders voted to approve our 2014 Omnibus Incentive Plan, which authorizes us to make 4 million shares of our class A common stock available to be granted. These shares may be either authorized but unissued shares or treasury shares.

For a further discussion on how we account for our share based compensation, see "Note 9, Share Based Compensation," included in the notes to our Financial Statements, above.

Taxes

We are a U.S. taxpayer and are subject to a statutory U.S. federal corporate income tax rate of 35%. Our holding company files a consolidated U.S. federal and various state income tax returns on behalf of itself and its subsidiaries. Our effective income tax rate on our pre-tax loss was 9.2% for the three months ended June 30, 2014, compared to 0.0% for the comparable 2013 period. Our effective income tax rate on our pre-tax loss was 4.4% for the six months ended June 30, 2014, compared to 0.0% for the comparable 2013 period.

The income tax benefit of $1.3 million for the six months ended June 30, 2014 is related to the tax effects of unrealized gains credited to other comprehensive income (OCI). Generally, the amount of tax expense or benefit allocated to continuing operations is determined without regard to the tax effects of other categories of income or loss, such as OCI. However, an exception to the general rule is provided in ASC 740-20-45-7 when there is a pre-tax loss from continuing operations and there are items charged or credited to other categories, including OCI, in the current year. The intra-period tax allocation rules related to items charged or credited directly to OCI can result in disproportionate tax effects that remain in OCI until certain events occur. As a result of a reduction in unrealized losses credited directly to OCI during the six months ended June 30, 2014, approximately $2.7 million of tax provision expense has been netted with current year unrealized gains in OCI, and $1.3 million of tax provision benefit was allocated to the income tax provision for continuing operations. At year-end, we expect the two amounts to be fully offsetting, and for these tax items to have no impact on net book value or cash flow. Other benefits from income taxes were eliminated or reduced by the recognition of a full valuation allowance which was recorded to reflect the amount of the deferred taxes that may not be realized.

As of June 30, 2014 and as of December 31, 2013, we have a net deferred tax liability of $0.1 million as a result of the acquisition of indefinite-lived intangibles in the MAC Acquisition for which no benefit has been reflected in the acquired net operating loss carry forwards. The tax liability incurred at the acquisition was recorded as an increase in goodwill.

Our financial statements reflect a valuation allowance with respect to our net deferred tax assets. If the valuation allowance is reduced in the future, we would recognize an income tax benefit associated primarily with the carry forward of federal net operating losses and future stock compensation tax deductions.

Under current guidance, when evaluating a tax position for recognition and measurement, an entity shall presume that the tax position will be examined by the relevant taxing authority that has full knowledge of all relevant information. The interpretation adopts (i) a benefit recognition model with a two-step approach; (ii) a more-likely-than-not threshold for recognition and derecognition; and (iii) a measurement attribute that is the greatest amount of benefit that is cumulatively greater than 50% likely of being realized. As of June 30, 2014 and as of December 31, 2013, we had no reserve for unrecognized tax benefits.

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Employees    

We believe our Company is an attractive, stable place of employment, given that we are a well-capitalized insurance company that has made significant progress in commencing business in the MI marketplace, allowing us to attract what we believe to be high-quality talent. We believe that our growth and future success will depend in large part on our services and the skills of our management team and our ability to motivate and retain these individuals and other key personnel. As of June 30, 2014, we had significantly developed our employee base to support our regional and national sales teams, policy acquisition and servicing, IT, and all other back-office functions. Based on the execution of our business plan, we hired a substantial number of employees since our Private Placement in April 2012 and expect to continue to add additional staff through the first half of 2015. As of June 30, 2014, we had 174 total full-time employees. We believe that our employee compensation costs will be a primary driver of our other underwriting and operating expenses through the remainder of 2014.

Proposed PMIERS

On July 10, 2014, the FHFA released for public input the proposed PMIERs. The PMIERs, when finalized and effective, establish operational, business, remedial and financial requirements applicable to private mortgage insurers that insure residential mortgages owned or guaranteed by Fannie Mae and Freddie Mac, i.e., Approved Insurers. (Italicized terms have the same meaning that such terms have in the draft PMIERs, as described below.) Public input on the draft PMIERs is due no later than September 8, 2014.

We believe that the draft PMIERs will help restore confidence in an industry affected by the recent housing crisis. We also believe a strong and financially sustainable private mortgage insurance industry is a key component of a healthy residential mortgage market and that NMIC is well positioned under the PMIERs to continue to serve the growing demand for private MI.

In an Overview of the draft PMIERs published concurrently with release of the revised eligibility standards, the FHFA announced that the PMIERs will take effect 180 days following the publication date of final PMIERs (the “Effective Date”). The Overview further provides that prior to the Effective Date, each private mortgage insurer shall either (i) certify to the GSEs that it fully complies with the PMIER financial requirements as of the Effective Date, or (ii) obtain GSE approvals on a transition plan detailing how it will comply with the financial requirements not later than 2 years following the publication date (the “Compliance Date”). We understand that each GSE will publish its own set of PMIERs and that final publication will likely occur late this year or early next year, making the Effective Date sometime in mid-2015. As of the Effective Date, each MI, including NMIC, will have to comply with the financial requirements or have a GSE-approved transition plan in place.

Under the proposed PMIER financial requirements, an approved insurer must maintain available assets that equal or exceed minimum required assets, which is an amount equal to the greater of (i) $400 million, or (ii)the total risk-based required asset amount. The total risk-based required asset amount for an approved insurer is a function of its direct risk-in-force (net risk-in-force for certain qualifying reinsurance arrangements) and the risk profile of all loans it has insured as of any determination date. It is calculated by applying the applicable risk-based required asset factor to the risk-in-force under each insured loan and summing over all loans, subject to a floor equal to 5.6% of total risk-in-force. The proposed risk-based required asset factors, which are set forth in tables contained in the draft PMIERs, vary over several risk dimensions including loan-to-value, FICO credit score, vintage, and loan status, i.e., performing or non-performing. In addition, there are surcharges for some non-GSE eligible performing loans that have certain risk characteristics, such as those underwritten with less than full documentation, non-owner occupied, non-fully amortizing or those in which the debt to income ratio exceeds 43%.

As of June 30, 2014, on a consolidated basis, the Company has minimum assets as defined by the draft PMIERs of approximately $448.0 million, but only $209.1 million of the minimum assets are at NMIC, including the assets of Re One. Therefore, if the draft PMIERs took effect as of June 30, 2014, NMIH would need to contribute substantially all of its capital to NMIC to be in compliance. Even if NMIH contributed substantially all of its capital to NMIC, it is likely that NMIC's available assets will fall below $400 million on the Effective Date. Therefore, assuming the PMIERs are finalized and published as anticipated, we expect that NMIC will submit a transition plan to the GSEs within 90 days of the Effective Date detailing how NMIC will fully comply with the PMIERs on the Compliance Date. Any transition plan will likely include raising additional capital prior to the Compliance Date, which is consistent with the Company’s previous guidance regarding the timing of future capital raises to fund growth in the business, which we expect to occur after 2015. Additionally, we expect NMIC's available assets will exceed the total risk-based required asset amount through the end of 2015, with periodic capital contributions from NMIH. If the draft PMIERs were adopted as drafted today, we expect that the amount of capital we would have to hold under our pool insurance agreement with Fannie Mae would be significantly reduced. We discuss the current and expected capital requirements for this pool transaction above in "- New Insurance Written, Insurance in Force and Risk in Force - Fannie Mae Pool Transaction."

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If the draft guidelines were implemented today, we believe that based on the industry's mix of primary mortgage insurance written in the first half of 2014 and pricing from our current rate card, the industry would be able to operate at an approximate 14:1 risk to required assets ratio and produce a return on assets ranging from 16% to 17%.  If the industry were to return to a more broadly distributed mix of FICO buckets, such as that produced in 2001, where the industry weighted average FICO score was lower, we believe the industry would be able to operate at an approximate 12:1 risk to required assets ratio, producing a return on assets ranging from 14 to 15%.  Under this scenario, using our current rate card, the weighted average pricing would increase as a result of insuring an increased percentage of loans with lower FICO score.  We believe we currently have higher prices than the rest of the industry in FICO buckets less than 660 and therefore we do not expect to have to raise prices in those FICO buckets to continue to earn a mid-teen return on assets should the draft PMIERs be implemented without change.

We will submit comments and/or input on the draft PMIERs to the FHFA, either directly on behalf of our subsidiary NMIC, through our trade group USMI or both. We believe there should be consideration in available assets for future earned premium from all of an approved insurer’s IIF. We also anticipate requesting clarification in the PMIERs as to how insured business for particular book years will be treated as the book ages, as we believe that charges under applicable risk-based required asset factors should consider the actual performance to date on aged vintages of insured loans. We further expect that the risk-based required asset factor charges for delinquent loans will be reassessed as today’s crisis-era delinquencies reach resolution. We may also have additional comments on other provisions contained in the draft PMIERs. We expect the GSEs will modify the final PMIERs in response to some of the comments it receives during the public comment period.

GSE Approval Conditions and GSE Reform

The GSEs are the principal purchasers of mortgages insured by MI companies, primarily as a result of their legislative mandate to provide liquidity in the secondary mortgage market. Following the Company's Private Placement in April 2012, NMIC's key focus was to first secure approvals from the GSEs. In January 2013, Fannie Mae and Freddie Mac each approved NMIC as a qualified mortgage insurer, and with their approvals, imposed certain capitalization, operational and reporting conditions on NMIC (collectively the "GSE Approval"), most of which remain in effect for a three (3) year period from the date of GSE Approval. We expect that the significant majority of insurance we will write will be for loans sold to the GSEs. As a GSE qualified mortgage insurer, NMIC is subject to ongoing compliance with the conditions in the GSE Approval as well as the GSEs' respective qualified mortgage insurer eligibility requirements ("Eligibility Requirements"), each of which is further discussed below.

The conditions in the GSE Approval require, among other things, that NMIC:

• be initially capitalized in the amount of $200 million and that its affiliate reinsurance companies, Re One and Re Two, be initially capitalized in the amount of $10 million each (as of September 30, 2013, Re Two was merged into NMIC, with NMIC surviving the merger. See "Note 1, Organization and Basis of Presentation" in our Financial Statements in Part I of this report);

• maintain minimum capital of $150 million;

• operate at a risk-to-capital ratio not to exceed 15:1 for its first three (3) years and then pursuant to the GSE Eligibility Requirements then in effect;

• not declare or pay dividends to affiliates or to NMIH for its first three (3) years, then pursuant to the Eligibility Requirements;

• not enter into capital support agreements or guarantees for the benefit of, or purchase or otherwise invest in the debt of, affiliates without the prior written approval of the GSEs for its first three (3) years, then pursuant to the Eligibility Requirements;

• not enter into reinsurance or other risk share arrangements without the GSEs' prior written approval for its first three (3) years, then pursuant to the Eligibility Requirements; and

• at the direction of one or both of the GSEs, re-domicile from Wisconsin to another state.

The GSE Approvals also include other conditions, limitations and reporting requirements, such as limits on costs allocated to NMIC under affiliate expense sharing arrangements, risk concentration, rates of return, requirements to obtain a financial strength rating, provision of ancillary services (i.e., non-insurance) to customers, transfers of underwriting to affiliates, notification requirements regarding change of ownership and new five percent (5%) shareholders, provisions regarding underwriting policies and claims processing as well as certain other obligations.

The GSEs each maintain their own Eligibility Requirements, which they have been in the process of revising since mid-2010. As discussed above, on July 10, 2014, the FHFA released for public input the proposed PMIERs, that when adopted will replace the Eligibility Requirements. Because the timing with respect to adoption and final publication of the new PMIERs is uncertain, it is

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unclear how we will transition from having to meet the conditions in our GSE Approval letters to the current Eligibility Requirements or the new PMIERs, as the case may be, in order to remain a GSE-approved mortgage insurer. We currently expect that the PMIERs will go into effect before our current approval letters expire; however, it is possible that the PMIERs will not go into effect until after some of the conditions contained in our approval letters have expired. We are in the process of reviewing the draft PMIERs and we will submit comments and/or input to the FHFA, either directly on behalf of NMIC, through our trade group USMI or both. We anticipate that most of our comments will focus on the effect of the draft PMIER's financial requirements. Even if the PMIERs are adopted as proposed, we believe NMIC is well positioned to fully comply with the new financial requirements within the transition period and to continue to serve demand for private MI. See "- Proposed PMIERs," above.

In addition, in connection with the FHFA's mandate that the GSEs align their mortgage insurer eligibility standards, the GSEs have imposed minimum standards for mortgage insurer master policies, including standards related to limitations on insurers' rescission rights. To comply with the GSEs' master policy requirements, we and our competitors have filed new master policies with state insurance regulators. As of the date of this report, NMIC's new master policy has been approved in 49 states and the District of Columbia. NMIC will begin covering loans under its new master policy with respect to approved mortgage insurance applications it receives on and after October 1, 2014, consistent with the GSEs' requirements.

GSE Reform

The increased role that the federal government has assumed in the residential mortgage market through the FHFA's conservatorship of the GSEs may increase the likelihood that the business practices of the GSEs change in ways that affect the MI industry. Since 2011, there have been numerous legislative proposals, including in the current Congressional session, intended to scale back the GSEs, however, no legislation has been enacted to date. Passage of currently proposed GSE reform legislation is uncertain and could change through the legislative process, which could take time, making the actual impact on us and our industry difficult to predict.

Competition

The MI industry is highly competitive and currently consists of seven private mortgage insurers, including NMIC, as well as governmental agencies like the FHA.

Private MI

The MI industry has recently been in a state of flux, with some existing companies exiting and new companies entering the space. In 2010, a new MI company was formed and started writing MI. We began writing MI in April of 2013. In January 2014, an existing reinsurance company completed its acquisition of an existing MI company that had been serving credit unions only, with the intention to expand its operations to serve the entire mortgage market. In addition, an existing MI company that had previously stopped writing MI business had announced its intent to attempt to resume its MI operations, which as of the date of this report have not been successful. Given this dynamic, we expect that there will be pressure in the coming years for industry participants to establish, grow or maintain their market share.

We believe that our strong capital position and competitive terms of coverage convey upon us an advantage in the marketplace. We expect that this advantage will translate to increasing our market share in the near term. Our competitors' share of the private MI market for the quarter ended March 31, 2014 varied from a low of approximately 2% to a high of approximately 27%. In general, we expect the total origination market to decline in 2014. However, within the total market of low-down payment loan originations, we expect the overall private MI penetration rate to increase as the FHA continues to scale back. See "Competition with FHA," below. Because we remain in the early stages of our initial growth phase, we continue to add new customers, and we believe that our existing customers will begin to allocate more of their business to us for placement of our MI. Consequently, even with a broader market slowdown, we expect that our business and share of the private MI market will continue to grow in 2014, as reflected in the trend of our NIW and growing IIF.

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Competition with FHA

The FHA, which is part of the federal U.S. Department of Housing and Urban Development, substantially increased its share of the total combined private and governmental mortgage insurance market beginning in 2008. We believe that the FHA's market share increased, in part, because private mortgage insurers tightened their underwriting guidelines (which led to increased utilization of the FHA's programs) and because of increases in the amount of loan level delivery fees that the GSEs assess on loans (which result in higher costs to borrowers). We believe that federal legislation and programs that were adopted as emergency measures to support the declining housing market provided the FHA with greater flexibility in establishing new products and resulted in increased market share for the FHA. During 2011, the FHA's market share began to gradually decline. In part, we believe the decline in market share has been driven by multiple increases in the FHA's mortgage insurance premium rates and upfront fees since 2010, as well as greater availability of private capital with new entrants to the MI sector, such as us. We believe that the FHA's current premium pricing, when compared to our current premium pricing (and considering the effects of GSE pricing changes and potential pricing changes as a result of the recently proposed PMIERs), allows us to be competitive with the FHA for loans where borrowers' FICO scores are above 680.

The below table shows the declining market share of the FHA/VA and the rising market share of private MI.

Notwithstanding the recent upturn in the FHA/VA market share (which we believe is primarily driven by seasonality), we believe the MI industry will continue to recover market share from the FHA as it pulls back and permits more private capital to return to the market.

Other Items

Off-Balance Sheet Arrangements and Contractual Obligations

We had no off-balance sheet arrangements at June 30, 2014. There are no material changes outside the ordinary course of business in the contractual obligations specified in our 2013 Form 10-K.

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Geographic Dispersion

We intend to build a geographically diverse portfolio and avoid geographic concentrations that might expose us to undue risk.  Risk will be managed by establishing targets and limits for new origination mix and/or portfolio limits.  Therefore, aside from the impact of market restrictions, we desire that our insurance origination mix by region be consistent with the overall distribution of mortgage originations in the United States that require mortgage insurance. 

On an ongoing and recurring basis, we plan to evaluate changing market conditions to determine if it is appropriate to establish, tighten, loosen or eliminate lending restrictions established by geographic area.  The evaluation is expected to include factors such as historical performance and the historical performance of other market participants, forward-looking projections for key risk drivers, estimated impact on loss performance, and existing portfolio concentrations.  Consistent with our governance processes, the geographic concentrations will be monitored on an ongoing basis and changes to market restrictions will be reviewed and adopted as needed. We currently have no geographic market restrictions in place.

Critical Accounting Estimates

We use accounting principles and methods that conform to GAAP. Where GAAP specifically excludes mortgage insurance we follow general industry practices. We are required to apply significant judgment and make material estimates in the preparation of our financial statements and with regard to various accounting, reporting and disclosure matters. Assumptions and estimates are required to apply these principles where actual measurement is not possible or practical. On an ongoing basis, we evaluate our estimates and assumptions. Our actual results may differ from these estimates under different assumptions or conditions.

We believe that the assumptions and estimates associated with revenue recognition, fair value measurements, our investment portfolio, deferred policy acquisition costs, income taxes, reserves for insurance claims and claims expenses, warrants and share-based compensation have the greatest potential impact on our consolidated financial statements. Therefore, we consider these to be our critical accounting estimates.

There have been no material changes to our critical accounting policies and estimates as compared to the critical accounting policies and estimates described in our Annual Report on Form 10-K for the year ended December 31, 2013.

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Item 3. Quantitative and Qualitative Disclosures About Market Risk

We own and manage a large investment portfolio of various holdings, types and maturities. Investment income is one of our primary sources of cash flow supporting operations and claim payments. The assets within the investment portfolio are exposed to the same factors that affect overall financial market performance. While our investment portfolio is exposed to factors affecting global companies and markets worldwide, it is most sensitive to fluctuations in the drivers of U.S. markets.

We manage market risk via a defined investment policy implemented by our treasury function with oversight from our Board's Risk Committee. Important drivers of our market risk exposure monitored and managed by us include but are not limited to:

• Changes to the level of interest rates. Increasing interest rates may reduce the value of certain fixed-rate bonds held in the investment portfolio. Higher rates may cause variable rate assets to generate additional income. Decreasing rates will have the reverse impact. Significant changes in interest rates can also affect persistency and claim rates to the extent that the investment portfolio must be restructured to better align it with future liabilities and claim payments. Such restructuring may cause investments to be liquidated when market conditions are adverse.

• Changes to the term structure of interest rates. Rising or falling rates typically change by different amounts along the yield curve. These changes may have unforeseen impacts on the value of certain assets.

• Market volatility/changes in the real or perceived credit quality of investments. Deterioration in the quality of investments, identified through changes to our own or third party (e.g., rating agency) assessments, will reduce the value and potentially the liquidity of investments.

• Concentration Risk. If the investment portfolio is highly concentrated in one asset, or in multiple assets whose values are highly correlated, the value of the total portfolio may be greatly affected by the change in value of just one asset or a group of highly correlated assets.

• Prepayment Risk. Bonds may have call provisions that permit debtors to repay prior to maturity when it is to their advantage. This typically occurs when rates fall below the interest rate of the debt.

At June 30, 2014, the duration of our fixed income portfolio, including cash and cash equivalents, was 2.92 years, which means that an instantaneous parallel shift (movement up or down) in the yield curve of 100 basis points would result in a change of 2.92% in fair value of our fixed income portfolio.  Excluding cash, our fixed income portfolio duration was 3.09 years, which means that an instantaneous parallel shift (movement up or down) in the yield curve of 100 basis points would result in a change of 3.09% in fair value of our fixed income portfolio.

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Item 4. Controls and Procedures

Disclosure Controls and Procedures

We maintain disclosure controls and procedures designed to ensure that information required to be disclosed in the reports we file or submit under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC's rules and forms, and that such information is accumulated and communicated to our management, including our Chief Executive Officer and Chief Financial Officer, as appropriate, to allow timely decisions regarding required disclosure.

Our management, including our Chief Executive Officer and Chief Financial Officer, conducted an evaluation of the effectiveness of our disclosure controls and procedures (as defined in Rule 13a-15(e) of the Exchange Act) as of June 30, 2014, pursuant to Rule 15d-15(e) under the Exchange Act. Management applied its judgment in assessing the costs and benefits of such controls and procedures, which by their nature, can provide only reasonable assurance regarding management's control objectives. Management does not expect that our disclosure controls and procedures will prevent or detect all errors and fraud. A control system, irrespective of how well it is designed and operated, can only provide reasonable assurance, and cannot guarantee that it will succeed in its stated objectives.

Based upon that evaluation, our Chief Executive Officer and Chief Financial Officer concluded that, as of June 30, 2014, our disclosure controls and procedures were effective to provide reasonable assurance that the information required to be disclosed by us in the reports we file or submit under the Exchange Act is recorded, processed, summarized, and reported within the time periods specified in the SEC's rules and forms.

Internal Control Over Financial Reporting

There was no change in our internal control over financial reporting that occurred during the period covered by this report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.

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PART II

Item 1. Legal Proceedings

On August 8, 2012, the Receiver of PMI filed the PMI Complaint against NMIH, NMIC and certain employees of the Company in California Superior Court, Alameda County.

Effective July 1, 2014, we entered into the Settlement Agreement. Pursuant to the terms of an Asset Purchase Agreement, dated February 7, 2013, between Arch and PMI, PMI transferred and assigned to Arch all causes of action pursued in the PMI Complaint. Pursuant to the terms of the Settlement Agreement, the Company and its insurance carriers made a settlement payment in favor of Arch, and Arch released the Defendants from all claims alleged in the PMI Complaint. Pursuant to the terms of the Settlement Agreement, Arch moved to dismiss the PMI Complaint with prejudice, which the Court granted on July 28, 2014. The settlement payment will have an immaterial impact on the Company's annual financial statements.

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Item 1A. Risk Factors

Risk factors that affect our business and financial results are discussed in Part I, Item IA. "Risk Factors" in our Annual Report on Form 10-K for the year ended December 31, 2013 ("Form 10-K"). Other than the risk factors identified below, we are not aware of any material changes in our risk factors from the risk factors disclosed in our Form 10-K. You should carefully consider the risks described herein and in our Form 10-K, which could materially and negatively affect our business, financial condition and/or operating results. The risks described herein and in our Form 10-K are not the only risks we face, as there are additional risks and uncertainties not currently known to us or that we currently deem to be immaterial which may in the future adversely affect our business, financial condition and/or operating results.

There can be no assurance that the GSEs will continue to treat us as a qualified mortgage insurer in the future, and our failure to comply with the GSEs’ proposed new private mortgage insurer eligibility requirements (“PMIERs”) could adversely impact our business, financial condition and operating results.

As discussed above in Item 2 - Management’s Discussion and Analysis of Financial Condition and Results of Operations - GSE Approval Conditions and GSE Reform, in January 2013, Fannie Mae and Freddie Mac each approved NMIC as a qualified mortgage insurer, and with their approvals, imposed certain capitalization, operational and reporting conditions on NMIC (collectively the "GSE Approvals"). Most of the conditions in the GSE Approvals remain in effect for a three year period from the date of the GSE Approvals, while others do not expressly expire. As a GSE qualified mortgage insurer, NMIC is subject to ongoing compliance with the conditions in the GSE Approvals as well as with the GSEs' respective existing qualified mortgage insurer eligibility requirements ("Eligibility Requirements"). As discussed above, on July 10, 2014, the FHFA released for public input the proposed PMIERs, that when adopted will replace the Eligibility Requirements.

We expect that the significant majority of insurance we will write will be for loans sold to the GSEs. As a result, NMIC’s compliance with the GSE Approvals, the Eligibility Requirements, and eventually the PMIERS is necessary to continue to successfully operate as a private mortgage insurer in the current market in the United States. Even though we have received GSE Approvals, there can be no assurance that the GSEs will continue to treat us as a qualified mortgage insurer in the future. Although not as likely, the GSEs could, in their own discretion, require additional limitations and/or conditions on certain of our activities and practices that are not currently in the GSE Approvals, Eligibility Requirements or PMIERs in order for NMIC to remain qualified. Such additional requirements or conditions could limit our operating flexibility and the areas in which we may write new business. If, in the future, either or both of the GSEs were to cease to consider us a qualified mortgage insurer and cease accepting our MI products, our financial condition and results of operations would be materially and adversely affected.

As a condition of the GSE Approvals, we have agreed with Fannie Mae and Freddie Mac to limit NMIC's risk-to-capital ratio to no greater than 15 to 1 for the first three years of operations (expiring December 31, 2015) and at all times to maintain total statutory capital of at least $150 million. After that date, we agreed to comply with any financial requirements that are imposed in the GSEs' then existing Eligibility Requirements. As announced by FHFA, the PMIERs are expected to take effect 180 days following the publication date of the final PMIERs (the “Effective Date”). Prior to the Effective Date, each private mortgage insurer will be required to either (i) certify to the GSEs that it fully complies with the PMIER financial requirements as of the Effective Date, or (ii) obtain GSE approvals on a transition plan detailing how it will comply with the financial requirements not later than 2 years following the publication date (the “Compliance Date”). We understand that each GSE will publish its own set of PMIERs and that final publication will likely occur late this year or early next year, making the Effective Date sometime in mid-2015. As of the Effective Date, each MI, including NMIC, will have to comply with the financial requirements or have a GSE-approved transition plan in place.

Under the proposed PMIER financial requirements, an approved insurer must maintain available assets that equal or exceed minimum required assets, which is an amount equal to the greater of (i) $400 million, or (ii) the total risk-based required asset amount. (Italicized terms have the same meaning that such terms have in the draft PMIERs, as described in this report.) The total risk-based required asset amount for an approved insurer is a function of its direct risk-in-force (net risk-in-force for certain qualifying reinsurance arrangements) and the risk profile of all loans it has insured as of any determination date. It is calculated by applying the applicable risk-based required asset factor to the risk-in-force under each insured loan and summing over all loans, subject to a floor equal to 5.6% of total risk-in-force. The proposed risk-based required asset factors, which are set forth in tables contained in the draft PMIERs, vary over several risk dimensions including loan-to-value, FICO credit score, vintage, and loan status, i.e., performing or non-performing. In addition, there are surcharges for some non-GSE eligible performing loans that have certain risk characteristics, such as those underwritten with less than full documentation, non-owner occupied, non-fully amortizing or those in which the debt to income ratio exceeds 43%.

As of June 30, 2014, on a consolidated basis, the Company has minimum assets as defined by the draft PMIERs of approximately $448 million, but only $209.1 million of the minimum assets are at NMIC, including the assets at Re One. Therefore,

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if the draft PMIERs took effect as of June 30, 2014, NMIH would need to contribute substantially all of its capital to NMIC to be in compliance. Even if NMIH contributed substantially all of its capital to NMIC, it is likely that NMIC's available assets will fall below $400 million on the Effective Date. Therefore, assuming the PMIERs are finalized and published as anticipated, we expect that NMIC will submit a transition plan to the GSEs within 90 days of the Effective Date detailing how NMIC will fully comply with the PMIERs on the Compliance Date. Any transition plan will likely include raising additional capital prior to the Compliance Date, which is consistent with the Company’s previous guidance regarding the timing of future capital raises to fund growth in the business, which we expect to occur after 2015. Additionally, we expect NMIC's available assets will exceed the total risk-based required asset amount through the end of 2015, with periodic capital contributions from NMIH.

While we intend to present a transition plan to the GSEs that will meet their requirements, there is no certainty that the GSEs will agree to any proposed plan we submit to them. Even with a GSE approved transition plan, there is no assurance NMIC will be able to comply with the PMIER financial requirements in their current proposed form by the Compliance Date. In addition, if our business grows faster (i.e. our risk-in-force grows faster than expected) or is less profitable than expected (i.e. our revenues do not generate the return we expect), we may need to accelerate the timing of any future capital raise or any alternative arrangements to reduce our RIF, including through reinsurance, in order to meet the financial requirements on the Compliance Date. Our efforts to raise capital or reduce our RIF may not be successful. If we are unable to raise additional capital or enter into alternative arrangements to reduce our RIF, we may not be able to successfully comply with the financial requirements by the Compliance Date. If this were to occur, we may lose our GSE eligibility, which would substantially impair our business and adversely impact our financial position and operating results.

We will submit comments and/or input on the draft PMIERs to the FHFA, either directly on behalf of our subsidiary NMIC, through our trade group USMI or both. We expect the GSEs will modify the final PMIERs in response to comments it receives from all constituencies during the public comment period; however, there is no assurance the FHFA or the GSEs will make any changes to the draft PMIERs in response to our feedback nor can we provide assurance that the modifications would provide more favorable financial requirements than those proposed in the current draft. In addition, the GSEs could respond to comments and feedback from our competitors that result in PMIER financial requirements that are more favorable to legacy MI companies than to newer entrants such as NMIC, which could harm us competitively. Given the uncertainty about the content and implementation of the final PMIERs, it is difficult to predict what the long-term impact on NMIC will be at this point. If, under any formulation of the PMIERs, we are required to increase the amount of available assets in order to support our business writings, the amount of capital we are required to hold may increase, which may have a negative effect on our returns. Any such effect could have a negative impact on our flexibility to meet our business plans and our future operating results.

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Item 6. Exhibits

Exhibit Number	Description
2.1	Stock Purchase Agreement, dated November 30, 2011, between NMI Holdings, Inc. and MAC Financial Ltd. (incorporated herein by reference to Exhibit 2.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
2.2	Amendment to Stock Purchase Agreement, dated April 6, 2012, between NMI Holdings, Inc. and MAC Financial Ltd. (incorporated herein by reference to Exhibit 2.2 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
3.1	Second Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
3.2	Second Amended and Restated By-Laws (incorporated herein by reference to Exhibit 3.1 to our Form 8-K, filed on May 12, 2014)
4.1	Specimen Class A common stock certificate (incorporated herein by reference to Exhibit 4.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.2	Registration Rights Agreement between NMI Holdings, Inc. and FBR Capital Markets & Co., dated April 24, 2012 (incorporated herein by reference to Exhibit 4.2 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.3	Registration Rights Agreement by and between MAC Financial Ltd. and NMI Holdings, Inc., dated April 24, 2012 (incorporated herein by reference to Exhibit 4.3 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.4	Registration Rights Agreement between FBR & Co., FBR Capital Markets LT, Inc., FBR Capital Markets & Co., FBR Capital Markets PT, Inc. and NMI Holdings, Inc., dated April 24, 2012 (incorporated herein by reference to Exhibit 4.4 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.5	Warrant No. 1 to Purchase Common Stock of NMI Holdings, Inc. issued to FBR Capital Markets & Co., dated June 13, 2013 (incorporated herein by reference to Exhibit 4.5 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.6	Form of Warrant to Purchase Common Stock of NMI Holdings, Inc. issued to former stockholders of MAC Financial Ltd.(incorporated herein by reference to Exhibit 4.6 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.1	NMI Holdings, Inc. 2012 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.2	Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Chief Executive Officer and Chief Financial Officer (incorporated herein by reference to Exhibit 10.2 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.3	Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Management (incorporated herein by reference to Exhibit 10.3 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.4	Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Directors (incorporated herein by reference to Exhibit 10.4 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.5	Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Chief Executive Officer and Chief Financial Officer (incorporated herein by reference to Exhibit 10.5 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.6	Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Management (incorporated herein by reference to Exhibit 10.6 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.7	Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Directors (incorporated herein by reference to Exhibit 10.7 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.8	Employment Agreement by and between NMI Holdings, Inc. and Bradley M. Shuster, dated March 6, 2012 and Amendment, dated April 24, 2012 (incorporated herein by reference to Exhibit 10.8 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.9	Amendment to Employment Agreement by and between NMI Holdings, Inc. and Bradley M. Shuster, dated April 24, 2012 (incorporated herein by reference to Exhibit 10.9 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)

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Exhibit Number	Description
10.10	Employment Agreement by and between NMI Holdings, Inc. and Jay M. Sherwood, dated March 6, 2012 and Amendment, dated April 24, 2012 (incorporated herein by reference to Exhibit 10.10 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.11	Amendment to Employment Agreement by and between NMI Holdings, Inc. and Jay M. Sherwood, dated April 24, 2012 (incorporated herein by reference to Exhibit 10.11 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.12	Letter Agreement by and between NMI Holdings, Inc. and Stanley M. Pachura, dated April 26, 2012 (incorporated herein by reference to Exhibit 10.12 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.13	Form of Indemnification Agreement between NMI Holdings, Inc. and certain of its directors (incorporated herein by reference to Exhibit 10.13 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.14+	Commitment Letter dated July 12, 2013 for Bulk Fannie Mae-Paid Loss-on-Sale Mortgage Insurance on the Portfolio of approximately $5.46 billion Purchased by Fannie Mae and Identified by Fannie Mae as Deal No. 2013 MIRT 01 and by the Company as Policy No. P-0001-01 (incorporated herein by reference to Exhibit 10.14 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.15	NMI Holdings, Inc. 2014 Omnibus Incentive Plan (incorporated herein by reference to Appendix A to our 2014 Annual Proxy Statement filed on March 26, 2014)
21.1	Subsidiaries of NMI Holdings, Inc. (incorporated herein by reference to Exhibit 21.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
23.1	Consent of BDO USA, LLP (incorporated herein by reference to Exhibit 23.1 to our Form 10-K for the period ended December 31, 2013, filed on March 12, 2014)
31.1	Principal Executive Officer's Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Principal Financial Officer's Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 #	Certifications of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Conditional Approval Letter, dated January 15, 2013, from Freddie Mac to National Mortgage Insurance Corporation (incorporated herein by reference to Exhibit 99.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
99.2	Conditional Approval Agreement, dated January 16, 2013, by and among Federal National Mortgage Association, NMI Holdings, Inc. and National Mortgage Insurance Corporation (incorporated herein by reference to Exhibit 99.2 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
101 *	The following financial information from NMI Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2014 and December 31, 2013 (ii) Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the three and six months ended June 30, 2014 and 2013 (iii) Condensed Consolidated Statements of Changes in Common Shareholders' Equity (Unaudited) for the six months ended June 30, 2014 and the year ended December 31, 2013 (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2014 and 2013, and (v) Notes to Condensed Consolidated Financial Statements (Unaudited)

#	In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibit 32 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act except to the extent that the registrant specifically incorporates it by reference.
*	In accordance with Rule 406T of Regulation S-T, the information furnished in these exhibits will not be deemed “filed” for purposes of Section 18 of the Exchange Act.  Such exhibits will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act except to the extent that the registrant specifically incorporates it by reference.
+	Confidential treatment granted as to certain portions, which portions have been filed separately with the Securities and Exchange Commission.

53

SIGNATURES

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.

	NMI HOLDINGS, INC.
August 8, 2014	By: /s/ John (Jay) M. Sherwood, Jr.
	Name: John (Jay) M. Sherwood, Jr.      Title: Chief Financial Officer

54

EXHIBIT INDEX

Exhibit Number	Description
2.1	Stock Purchase Agreement, dated November 30, 2011, between NMI Holdings, Inc. and MAC Financial Ltd. (incorporated herein by reference to Exhibit 2.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
2.2	Amendment to Stock Purchase Agreement, dated April 6, 2012, between NMI Holdings, Inc. and MAC Financial Ltd. (incorporated herein by reference to Exhibit 2.2 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
3.1	Second Amended and Restated Certificate of Incorporation (incorporated herein by reference to Exhibit 3.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
3.2	Second Amended and Restated By-Laws (incorporated herein by reference to Exhibit 3.1 to our Form 8-K, filed on May 12, 2014)
4.1	Specimen Class A common stock certificate (incorporated herein by reference to Exhibit 4.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.2	Registration Rights Agreement between NMI Holdings, Inc. and FBR Capital Markets & Co., dated April 24, 2012 (incorporated herein by reference to Exhibit 4.2 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.3	Registration Rights Agreement by and between MAC Financial Ltd. and NMI Holdings, Inc., dated April 24, 2012 (incorporated herein by reference to Exhibit 4.3 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.4	Registration Rights Agreement between FBR & Co., FBR Capital Markets LT, Inc., FBR Capital Markets & Co., FBR Capital Markets PT, Inc. and NMI Holdings, Inc., dated April 24, 2012 (incorporated herein by reference to Exhibit 4.4 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.5	Warrant No. 1 to Purchase Common Stock of NMI Holdings, Inc. issued to FBR Capital Markets & Co., dated June 13, 2013 (incorporated herein by reference to Exhibit 4.5 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
4.6	Form of Warrant to Purchase Common Stock of NMI Holdings, Inc. issued to former stockholders of MAC Financial Ltd.(incorporated herein by reference to Exhibit 4.6 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.1	NMI Holdings, Inc. 2012 Stock Incentive Plan (incorporated herein by reference to Exhibit 10.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.2	Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Chief Executive Officer and Chief Financial Officer (incorporated herein by reference to Exhibit 10.2 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.3	Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Management (incorporated herein by reference to Exhibit 10.3 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.4	Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Restricted Stock Unit Award Agreement for Directors (incorporated herein by reference to Exhibit 10.4 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.5	Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Chief Executive Officer and Chief Financial Officer (incorporated herein by reference to Exhibit 10.5 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.6	Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Management (incorporated herein by reference to Exhibit 10.6 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.7	Form of NMI Holdings, Inc. 2012 Stock Incentive Plan Nonqualified Stock Option Award Agreement for Directors (incorporated herein by reference to Exhibit 10.7 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.8	Employment Agreement by and between NMI Holdings, Inc. and Bradley M. Shuster, dated March 6, 2012 and Amendment, dated April 24, 2012 (incorporated herein by reference to Exhibit 10.8 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.9	Amendment to Employment Agreement by and between NMI Holdings, Inc. and Bradley M. Shuster, dated April 24, 2012 (incorporated herein by reference to Exhibit 10.9 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)

i

Exhibit Number	Description
10.10	Employment Agreement by and between NMI Holdings, Inc. and Jay M. Sherwood, dated March 6, 2012 and Amendment, dated April 24, 2012 (incorporated herein by reference to Exhibit 10.10 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.11	Amendment to Employment Agreement by and between NMI Holdings, Inc. and Jay M. Sherwood, dated April 24, 2012 (incorporated herein by reference to Exhibit 10.11 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.12	Letter Agreement by and between NMI Holdings, Inc. and Stanley M. Pachura, dated April 26, 2012 (incorporated herein by reference to Exhibit 10.12 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.13	Form of Indemnification Agreement between NMI Holdings, Inc. and certain of its directors (incorporated herein by reference to Exhibit 10.13 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.14+	Commitment Letter dated July 12, 2013 for Bulk Fannie Mae-Paid Loss-on-Sale Mortgage Insurance on the Portfolio of approximately $5.46 billion Purchased by Fannie Mae and Identified by Fannie Mae as Deal No. 2013 MIRT 01 and by the Company as Policy No. P-0001-01 (incorporated herein by reference to Exhibit 10.14 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
10.15	NMI Holdings, Inc. 2014 Omnibus Incentive Plan (incorporated herein by reference to Appendix A to our 2014 Annual Proxy Statement, filed on March 26, 2014)
21.1	Subsidiaries of NMI Holdings, Inc. (incorporated herein by reference to Exhibit 21.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
23.1	Consent of BDO USA, LLP (incorporated herein by reference to Exhibit 23.1 to our Form 10-K for the period ended December 31, 2013, filed on March 12, 2014)
31.1	Principal Executive Officer's Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
31.2	Principal Financial Officer's Certification Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002
32 #	Certifications of CEO and CFO Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002
99.1	Conditional Approval Letter, dated January 15, 2013, from Freddie Mac to National Mortgage Insurance Corporation (incorporated herein by reference to Exhibit 99.1 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
99.2	Conditional Approval Agreement, dated January 16, 2013, by and among Federal National Mortgage Association, NMI Holdings, Inc. and National Mortgage Insurance Corporation (incorporated herein by reference to Exhibit 99.2 to our Form S-1 Registration Statement (Registration No. 333-191635), filed on October 9, 2013)
101 *	The following financial information from NMI Holdings, Inc.’s Quarterly Report on Form 10-Q for the quarter ended June 30, 2014, formatted in XBRL (eXtensible Business Reporting Language): (i) Condensed Consolidated Balance Sheets (Unaudited) as of June 30, 2014 and December 31, 2013 (ii) Condensed Consolidated Statements of Comprehensive Loss (Unaudited) for the three and six months ended June 30, 2014 and 2013 (iii) Condensed Consolidated Statements of Changes in Common Shareholders' Equity (Unaudited) for the six months ended June 30, 2014 and the year ended December 31, 2013 (iv) Condensed Consolidated Statements of Cash Flows (Unaudited) for the six months ended June 30, 2014 and 2013, and (v) Notes to Condensed Consolidated Financial Statements (Unaudited)

#	In accordance with Item 601(b)(32)(ii) of Regulation S-K and SEC Release No. 34-47986, the certifications furnished in Exhibit 32 hereto are deemed to accompany this Form 10-Q and will not be deemed “filed” for purposes of Section 18 of the Exchange Act or deemed to be incorporated by reference into any filing under the Exchange Act or the Securities Act except to the extent that the registrant specifically incorporates it by reference.
*	In accordance with Rule 406T of Regulation S-T, the information furnished in these exhibits will not be deemed “filed” for purposes of Section 18 of the Exchange Act.  Such exhibits will not be deemed to be incorporated by reference into any filing under the Securities Act or the Exchange Act except to the extent that the registrant specifically incorporates it by reference.
+	Confidential treatment granted as to certain portions, which portions have been filed separately with the Securities and Exchange Commission.

ii