NMI Q1 2025 Earnings Call Transcript

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April 29, 2025

There are 9 speakers on the call.

Operator

Good day, and welcome to the NMI Holdings, Inc. First Quarter twenty twenty five Earnings Conference Call. Please note this event is being recorded. I would now like to turn the conference over to John of Management. Please go ahead.

Speaker 1

Thank you, operator. Good afternoon and welcome to the twenty twenty five first quarter conference call for National MI. I'm John Swenson, Vice President of Investor Relations and Treasury. Joining us on the call today are Brad Shuster, Executive Chairman Adam Pollitzer, President and Chief Executive Officer and Aurora Swifenbank, our Chief Financial Officer. Financial results for the quarter were released after the close today.

Speaker 1

The press release may be accessed on NMI's website located at nationalmi.com under the investors tab. During the course of this call, we may make comments about our expectations for the future. Actual results could differ materially from those contained in these forward looking statements. Additional information about the factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website or through our regulatory filings with the SEC. If and to the extent the company makes forward looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments.

Speaker 1

Further, no one should rely on the fact that the guidance of such statements is current at any time other than the time of this call. Also note that on this call we may refer to certain non GAAP measures. In today's press release and on our website we provided a reconciliation of these measures to the most comparable measures under GAAP. Now I'll turn the call over to Brad.

Speaker 2

Thank you, John, and good afternoon, everyone. I'm pleased to report that in the first quarter, National MI again delivered strong operating performance, continued growth in our insured portfolio and record financial results. Our lenders and their borrowers continued to turn to us for critical down payment support, and in the first quarter, we generated $9,200,000,000 of NIW volume, ending the quarter with a record 211,300,000,000.0 of high quality, high performing primary insurance in force. In Washington, our conversations remain active and constructive. We'd like to congratulate Bill Pulte on his confirmation as Director of the FHFA.

Speaker 2

Under Director Pulte's leadership, the FHFA and GSEs have brought a renewed focus to the housing market and housing finance issues, with an overarching goal to help more Americans than ever before unlock the dream of homeownership. We have long noted that there is broad recognition of the unique and valuable role that the private mortgage insurance industry plays, working to consistently expand access to homeownership and all the benefits it provides, while also placing private capital in front of the GSEs and taxpayers to ensure the safety and soundness of the conventional mortgage market. National MI and the broader private mortgage insurance industry have never been stronger or better positioned to provide this critical support than we are today. And we're excited to work with Director Pulte and other members of the administration to advance their important housing goals. With that, let me turn it over to Adam.

Speaker 3

Thank you, Brad, and good afternoon, everyone. National MI continued to outperform in the first quarter, delivering significant new business production, consistent growth in our insured portfolio and record financial results. We generated $9,200,000,000 of NIW volume and ended the period with a record 211,300,000,000.0 of high quality, high performing primary insurance in force. Total revenue in the first quarter was a record $173,200,000 and we delivered record GAAP net income of 102,600,000.0 or $1.28 per diluted share and an 18.1% return on equity. Overall, we had a terrific quarter and stand today in a position of real strength.

Speaker 3

We're in the market every day with a clear mandate and purpose, offering a low cost, high value solution that makes homeownership more affordable and achievable for millions of deserving Americans in communities across the country with coverage that serves to insulate the GSEs and taxpayers from risk and loss in a downturn. We have a strong customer franchise, a talented team driving us forward every day, an exceptionally high quality book covered by a comprehensive set of risk transfer solutions and a robust balance sheet supported by the significant earnings power of our platform. Stepping back, this is an interesting time, one where the strength of our current performance and near term outlook stand in contrast to prevailing economic themes. And while we don't know how the macro environment will develop, we're confident that the disciplined approach we've taken to managing our business will carry our performance through all market cycles. From the start, we focused on building National MI in a durable, risk responsible manner.

Speaker 3

We've worked hard to establish a comprehensive credit risk management framework and have always maintained a proactive stance with respect to our pricing, risk selection and reinsurance decisioning. It's an approach that has served us well and continues to be the prudent and appropriate course. Overall, we had a terrific quarter, delivering strong operating performance, continued growth in our insured portfolio and record financial results. More broadly, we remain encouraged by the continued discipline that we see across the private MI market. Looking ahead, we're well positioned to continue to serve our customers and their borrowers, invest in our employees and their success, drive growth in our high quality insured portfolio and deliver through the cycle growth, returns and value for our shareholders.

Speaker 3

Before turning it over to Aurora, I'm pleased to also share that we've extended our long term IT engagement with Tata Consultancy Services on favorable terms into 02/1932. PCS has been a valued partner of ours since 2020 and has been a key resource as we continue to drive innovation and efficiency across our platform. And we're excited to have successfully extended our partnership. With that, I'll turn it over to Aurora.

Speaker 4

Thank you, Adam. We again delivered record financial results in the first quarter. Total revenue was a record 173,200,000.0 Net income was a record $102,600,000 or $1.28 per diluted share and return on equity was 18.1%. We generated 9,200,000,000 of NIW and our primary insurance in force grew to $211,300,000,000 up 1% from the end of the fourth quarter and 6% compared to the first quarter of twenty twenty four. '12 month persistency was 84.3 in the first quarter compared to 84.6% in the fourth quarter.

Speaker 4

Net premiums earned in the first quarter were a record $149,400,000 compared to $143,500,000 in the fourth quarter and $136,700,000 in the first quarter of twenty twenty four. Net yield for the quarter was 28.4 basis points, up from 27.5 basis points in the fourth quarter. Core yield, which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings, was unchanged at 34.1 basis points. Investment income was $23,700,000 in the first quarter compared to $22,700,000 in the fourth quarter and $19,400,000 in the first quarter of twenty twenty four. Total revenue was a record $173,200,000 in the first quarter, up 4% compared to the fourth quarter and 10.9% compared to the first quarter of twenty twenty four.

Speaker 4

Underwriting and operating expenses were $30,200,000 in the first quarter compared to $31,100,000 in the fourth quarter. Our expense ratio was 20.2% in the quarter compared to 21.7% in the fourth quarter. We had 6,859 defaults at March 31, including six twenty five notices of loans in FEMA declared disaster areas. And our default rate at quarter end was unchanged at 1%. Claims expense in the first quarter was $4,500,000 compared to $17,300,000 in the fourth quarter.

Speaker 4

Credit performance in the first quarter benefited from normal seasonal cure activity to start the year, balanced partially by the natural growth and seasoning of our portfolio. GAAP net income was a record $102,600,000 up 19% compared to $86,200,000 in the fourth quarter and 15% compared to $89,000,000 in the first quarter of twenty twenty four. Diluted EPS was $1.28 up 20% compared to $1.07 in the fourth quarter and 18% compared to $1.08 in the first quarter of twenty twenty four. Total cash and investments were $2,900,000,000 at quarter end, including $76,000,000 of cash and investments at the holding company. Shareholders' equity as of March 31 was $2,300,000,000 and book value per share was $29.65 Book value per share excluding the impact of net unrealized gains and losses in the investment portfolio was $30.85 up 4% compared to the fourth quarter and 17% compared to the first quarter of last year.

Speaker 4

In the first quarter, we repurchased $25,900,000 of common stock, retiring 718,000 shares at an average price of $36.12 Through quarter end, we've repurchased a total of $271,000,000 of common stock, retiring 10,000,000 shares at an average price of $27.03 We have $3.00 $4,000,000 of repurchase capacity remaining under our existing program. At quarter end, we reported $3,200,000,000 of total available assets under PMIERs and $1,900,000,000 of based required assets. Excess available assets were 1,400,000,000.0 Overall, we achieved standout financial results during the quarter, with consistent growth in our high quality insured portfolio and record top line performance, favorable credit experience and continued expense efficiency, driving record bottom line profitability and strong returns. And with that, let me turn it back to Adam.

Speaker 3

Thank you, Aurora. We had a terrific quarter, once again delivering significant new business production, consistent growth in our high quality insured portfolio and record financial results. We have a strong customer franchise, a talented team driving us forward every day, an exceptionally high quality book covered by a comprehensive set of risk transfer solutions and a robust balance sheet supported by the significant earnings power of our platform. Taken together, we are well positioned to continue to serve our customers and their borrowers, invest in our employees and their success, drive growth in our high quality insured portfolio and deliver through the cycle growth, returns and value for our shareholders. Thank you for joining us today.

Speaker 3

I'll now ask the operator to come back on so we can take your questions.

Operator

We will now begin the question and answer session. Our first question comes from Mihir Bhatia with Bank of America. Please go ahead.

Speaker 5

Hi. Thank you for taking my questions, and good afternoon. Wanted to start with just on the credit side, maybe just talk a little bit about vintage performance. Are you seeing pretty stable performance from, the newer vintages? Or are you seeing a little bit more normalization, if you will, after some exceptionally strong performance years?

Speaker 3

Yes, Mihir, it's a good question. I'd say broadly speaking, the starting point is we apply the same rigor around underwriting risk selection, managing our mix, pricing with discipline, pricing with a focus on through the cycle performance for our more recent vintages as we have done at all points in the past. You could see it and we've talked about it in the past on our in the earnings release, there's a table that breaks out performance by vintage. And you can see that the incurred loss ratios for some of our more recent vintages, really the post pandemic vintages are higher than the pandemic and pre pandemic vintages. And the underlying profile of the borrowers, the mix for all of those is nearly identical.

Speaker 3

The difference though that's coming through is simply the level of equitization that supports the borrowers in our 2021 book and earlier versus our 2022 book and more recent. And so we do one of the items that Aurora talked about in her prepared remarks is growth and seasoning of our portfolio. This idea of normalization as the underlying experience of the borrowers normalizes. We do expect that that trend will continue as we go forward. But we're pleased with the performance that we've seen on those more recent vintages.

Speaker 3

Nothing stands out as a concern. The only notable difference is just the level of equity because of the differences in house price appreciation. If you look from a starting point 2022 and forward versus say a starting point 2020 and forward.

Speaker 5

Right. I'm sorry if I missed this in the prepared, but how much equity is there in your default? Like, think you'll sometimes give us that.

Speaker 4

Yeah, the average mark to market equity on our defaulted population or the average LTV is 73.2%.

Speaker 5

Got it. Thank you. And then just switching just very quickly on the TCS renewal. Any impact to your OpEx outlook for this year or any additional comments on that renewal?

Speaker 3

Yeah, I'd say, look, broadly speaking as an operating matter, it's a business matter. We're really delighted to have extended the partnership. We've now worked with UCS for over five years. They've got deep expertise across the mortgage finance value chain. They know us, they know our systems and really we've been able to lean on them to drive continued innovation and efficiency.

Speaker 3

So as a business matter, it's a huge positive. I mentioned favorable terms in my prepared remarks. And so going forward, our costs won't really change from where they are today. We expect that our expenses under the extended agreement will be roughly the same going forward as they have been on a run rate basis for the expense flow that we carried in Q1, maybe a little bit of movement here or there, but by and large nothing of note.

Speaker 5

Got it. Thank you. I'll get back in queue.

Operator

And the next question comes from Bose George with KBW. Please go ahead.

Speaker 6

Hey, everyone. Good afternoon. Just first, given the uncertainty around tariffs, etcetera, have you guys changed anything in terms of pricing or credit loss expectations? Or just how are you sort of incorporating that into your credit process?

Speaker 3

Yes, I'll give you a perspective. One, as I said, it's an interesting time where there's nothing today in either our internal spot data or the, I'd say the hard data around us that points to a challenge, but obviously the headlines, the emerging market volatility, broader concerns around what tariffs and other policies might mean from an economic standpoint, they certainly factor into our thinking. I think the big item to note though, and so we'll always make changes, right? Will make changes in our pricing engine with frequency for a variety of reasons to shape our portfolio to give consideration to emerging macro risks. But we're doing that from a point of where we're already embedding conservatism because we have to right?

Speaker 3

We're pricing our policies today with an expectation or at all times with an expectation that they'll stay on our books for several years. And during that several year timeframe, we have to contemplate that there's the potential and ascribe a probability to a downturn other than what we might just be seeing in the current here and now in a blue sky environment, let's say. So, all already our pricing are the management of our mix, the decisions we make around our balance sheet, our reinsurance purchasing, all of those items already contemplate the possibility that stress will develop when headlines emerge and concerns emerge that those that stress might that may be a bit more acute than at past points. We do factor for that, but it's not a wholesale change, By embedding that discipline and conservatism, we can make sure that we're always showing up for our customers and their borrowers with consistency. And so there's things that we do in an environment like today, where we might further refine our thinking, but it's not a wholesale shift in how we engage in the market, what our posture is.

Speaker 6

Okay, great. That's helpful. Thanks. And then actually, what was your provision for new notices in 1Q versus 4Q? Just given the intra quarter recoveries, it just makes a little hard to do the math over the prior quarter.

Speaker 4

Yes, it's $13,500 is the reserve that we put up on new notices. And you're right, it is sometimes difficult to parse from the table, just there were a number of hurricane related NODs in the quarter. And as you know, reserve at a different level given the different behavior we see in the disaster related NODs.

Speaker 6

And what was the number last quarter?

Speaker 4

It was roughly equivalent. So that's 13,500 excluding the hurricane related NODs to take that noise out of the equation.

Speaker 3

Yes. Both just in the aggregate. So in the aggregate, we posted a little under $26,000,000 of reserves against the new notices that emerged in the first quarter. Some of the noise that I was talking about, so there's the storm related entities that create some distortions. Also, you may remember we've got some notes in our release that the IBNR dynamic incurred but not reported can introduce a little bit of noise in the quarter.

Speaker 3

But when you normalize for those items in the aggregate, it's about $26,000,000 But on an average reserve per new notice, it's pretty consistent with where we were in Q4.

Speaker 6

Okay, great. Thanks.

Operator

And the next question comes from Rick Shane with JPMorgan. Please go ahead.

Speaker 7

Good afternoon, everybody. Excuse me.

Speaker 8

Two questions, and I apologize if I missed this. Did you provide

Speaker 7

the buyback during the quarter?

Speaker 4

We did. It was $25,900,000 or 718,000 shares.

Speaker 7

Excellent. Thank you. Second question, we're in this odd period where there are the portfolio is so bifurcated in terms of the characteristics. It's not the normal distribution. And one of the characteristics of the season vintages is a tremendous amount of HPA.

Speaker 7

Is there any concern at this point despite the fact that rates are so high and refi activity is muted that there could be some sort of adverse selection related to extinguishment of PMI on some of those really strong vintages?

Speaker 3

Yes, Rick, maybe let me answer, but also let me just share one comment around the question you posed. So you said there's a real bifurcation across the portfolio. And I'd want to reiterate, there's consistency across all vintages in terms of what the underlying borrower loan risk characteristics are, the broad geographic diversification that we have, the broad customer diversification,

Speaker 5

all of

Speaker 3

that holds across all vintages. So when we think about the quality of our portfolio, those core sort of foundational drivers of credit performance borrow risk attributes loan risk attributes property risk attributes geographic diversification all of those hold. The only notable difference is differences in the level of equitization from the time of origination to where we sit today. And now that's real. That will have an impact on loan performance and our claim experience across the different vintages.

Speaker 3

But the entire portfolio was high quality. It was underwritten with consistency and with a similar focus across all times. To the question as to whether or not there's adverse selection that might come through. No, we're not seeing that. I think the it's the rate environment more than anything that drives the refinancing opportunity.

Speaker 3

And perhaps on the margin, where there's this sort of natural dynamic that happens with automatic cancellations right that happened at a 78% scheduled not appreciated LTV. So if you think that your lower risk policies are say you're 85 in your 90s because you're starting with more equity even before any house price appreciation. Those are loans that naturally hit a point of automatic cancellation before higher LTV loans because they're obviously closer to 78. So it may be like a little bit, but there's nothing from a borrower behavior or strategy standpoint that we're seeing come through. It's really all driven by the prevailing rate environment compared to their underlying note rate and the opportunity for savings.

Speaker 3

Got it. No. And look, it's a fair point in terms of

Speaker 7

the going in or the entry borrower quality. But I also think it's fair to say that, you know, a borrower with a 4% loan and 35% HPA, the credit profile over the next couple of years is probably different than a similar borrower going in who's got a 6.5% coupon and 5% or 10% HPA.

Speaker 3

Yes, absolutely. May be saying the same thing, right? I would say that that's not different credit profile. It's different loan experience and performance. But yes, absolutely.

Speaker 3

Those items do matter.

Speaker 7

Okay. Thank you guys very much.

Operator

This concludes our question and answer session. I would like to turn the conference back over to management for any closing remarks.

Speaker 3

Well, thank you all again for joining us. We'll be participating in the KBW Virtual Real Estate Finance Conference on May 20 and the Truist Financial Services Conference in New York on May 21. We look forward to speaking with you again soon.

Operator

The conference has now concluded. Thank you for attending today's presentation. You may now disconnect.

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NMI Q1 2025
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