Q3 2023 NMI Holdings Inc Earnings Call
Good day and welcome to the <unk> Holdings third quarter, 'twenty, two and three earnings conference call.
I have to say.
Presentation there'd be opportunity to ask questions can I ask a question my first off did one when your telephone keypad.
Joe Your question. Please press Star then two please note. This event is being recorded.
How do I like to turn the conference over to Mr. John Simpson. Please go ahead.
Thank you operator, good afternoon, and welcome to the 2023 third quarter conference call for National and my.
I'm, John Swenson, Vice President of Investor Relations and Treasury.
Joining us on the call today are Brad Shuster Executive Chairman, Evan Pelletier, President and Chief Executive Officer, Robert <unk>, Chief Financial Officer, and Nick <unk> Our controller.
Financial results for the quarter were released after the close today. The press release may be accessed and minimize web site located at National <unk> Dot com under the investors tab.
During the course of this call we may make comments better 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, where through our regulatory filings with the SEC.
Yes, 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.
Further no one should rely on the fact that the guidance of such statements is current at any time other than the <unk>.
If this call.
Also note that on this call we may refer to certain non-GAAP measures.
Today's press release and on our website. We've provided a reconciliation of these measures to the most comparable measures under GAAP.
Now I'll turn the call over to Brett.
Thank you John and good afternoon, everyone.
I am pleased to report that in the third quarter National Emma again delivered standout operating performance.
Continued growth in our insured portfolio and record financial results.
Our lenders and their borrowers continued to turn to us for critical Downpayments support.
And then the third quarter, we generated $11 3 billion of <unk>.
<unk> volume.
Ending the period with a record $194 8 billion of high quality high performing insurance enforced.
Yeah.
Well the macro risk environment continues to evolve.
We remain greatly encouraged by the resiliency of the housing market.
Exceptional performance of our high quality insured portfolio.
And the broader success, we're achieving across our business.
In Washington, our conversations remain active and constructive.
Policymakers regulators, the FHFA and the Gse's remain highly focused on promoting broader access and affordability to the housing market.
And we believe there is broad recognition of the unique and valuable role that the private mortgage insurance industry plays in this regard.
That national.
We recognize the need to provide all borrowers with a fair and equitable opportunity to access the housing market.
Stablish a community identity.
And build long term wealth through homeownership.
Our products and the support we provide are more important today than ever before and.
And we see an increasing opportunity to support borrowers at a time when they need us most.
Overall, we had a terrific third quarter and are well positioned to continue to lead with impact in.
And drive value for our people.
Our customers and their borrowers.
And our shareholders going forward.
With that let me turn it over to Adam.
Thank you Brad and good afternoon, everyone.
National and my continued to outperform in the third quarter delivering significant new business production strong growth in our insured portfolio and record financial results.
We generated $11 $3 billion of Niwa volume and ended the period with a record $194 8 billion of high quality high performing insurance in force.
Total revenue in the third quarter was a record $148 2 million and we delivered record GAAP net income of $84 million or $1 per diluted share and a 19% return on equity.
Overall, we had an exceptionally strong quarter and are confident as we look ahead.
The macro environment and housing market in particular have remained resilient in the face of increasing interest rates.
We see a sustained new business opportunity with our lender customers and their borrowers continuing to rely on us in size for critical downpayment supports.
We have an exceptionally high quality and short portfolio and our credit performance continues to stand ahead.
Our persistency remains well above historical trend and when paired with our current and IW volume has helped to drive continued growth in embedded value gains in our insured book.
We've led with innovation and the risk transfer markets and a secured comprehensive reinsurance coverage on nearly all of the policies we have ever originated.
And we continue to manage our expenses and capital position with discipline and efficiency building a robust balance sheet that is supported by the significant earnings power of our platform.
Notwithstanding these strong positives however, macro risks do remain and we have maintained a proactive stance with respect to our pricing risk selection and reinsurance decisioning.
As an approach that has served us well and continues to be the prudent and appropriate course.
More broadly we've been encouraged by the continued discipline that we've seen across the private M&A market underwriting standards remain rigorous and the pricing environment remains balanced and constructive.
Overall, we had a terrific quarter.
<unk> strong operating performance continued growth in our insured portfolio and record financial results looks.
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 with that I'll turn it over to Robyn.
Thank you Adam.
We delivered record financial results in the third quarter with significant new business production strong.
Growth in our high quality insured portfolio record top line performance.
Favorable credit experience continued expense efficiency and record bottom line profitability.
Total revenue in the second quarter was a record $148 2 million.
GAAP net income was a record $84 million or $1 per diluted share and our return on equity was 19%.
We generated $11 3 billion of NII W and our insurance in force grew to $194 8 million.
Up 2% from the end of the second quarter, and 9% compared to the second quarter of 2022.
12 month Persistency was 86, 2% in the third quarter compared to 86% in the second quarter.
Persistency continues to serve as an important driver of the growth in embedded value of our insured portfolio.
Net premiums earned in the third quarter were a record $130 1 million compared to $126 million in the second quarter.
We earned 864000 from the cancellation of single premium policies in the third quarter compared to $1 1 million in the second quarter.
Net yield for the quarter was 27 basis points.
Up from $26 seven basis points in the second quarter.
Our yield which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings.
It was 33 nine basis points up from 33 eight basis points in the second quarter.
Investment income was $17 9 million in the third quarter compared to $16 5 million in the second quarter.
Total revenue was a record $148 2 million in the third quarter.
Up 4% compared to the second quarter.
13% compared to the third quarter of 2022.
Underwriting and operating expenses were $27 7 million in the third quarter.
Impaired to $27 4 million in the second quarter.
Our expense ratio was 21, 3% compared to 21, 8% in the second quarter.
We had 4594 defaults as of September 30th.
Paired to 4349 as of June 30.
And our default rate was 74 basis points at quarter end.
Claims expense in the third quarter was $4 8 million compared.
Compared to $2 9 million in the second quarter.
We have a uniquely high quality insured portfolio.
And our claims experience continues to benefit from the discipline with which we have shaped our book and the strong position of our existing borrowers as well as the broad resiliency, we're seeing in the housing market.
Interest expense in the quarter was $8 1 million.
Net income was a record $84 million or $1 per diluted share up 5% compared to <unk> 95 per diluted share in the second quarter.
And 12% compared to $90.
Per diluted share in the third quarter of 2022.
Total cash and investments were $2 4 billion at quarter end.
Including $134 million of cash and investments at the holding company.
Shareholders' equity as of September 30 was $1 8 billion.
Operator: Good day and welcome to the MMH Holdings 3rd quarter 2023 earnings conference call. After today's presentation, there will be opportunities to ask questions. To ask a question, you may press staffed in one on your telephone keypad. To withdraw your question, please press staffed in two. Please note this event has been recorded.
And book value per share was $21 94.
Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio was $24 56.
Up 4% compared to the second quarter, and 18% compared to the third quarter of last year.
John Swenson: I would like to turn the conference over to Mr. John Swenson. Please go ahead. Thank you, operator.
In the third quarter, we repurchased $19 2 million of common stock retiring 675000 shares at an average price of $28 51.
John Swenson: Good afternoon and welcome to the 2023 3rd quarter conference call for National M.I. I'm John Swenson, Vice President of Investor Relations and Treasury. Joining us on the call today are Brad Schuster, Executive Chairman, Adam Pollitzer, President and Chief Executive Officer, Ravi Mallela, Chief Financial Officer, and Nick Wilmuto, our Controller.
As of September 30, we had.
$208 million of repurchase capacity remaining under our existing program.
At quarter end, we reported total available assets under <unk> of $2 6 billion.
John Swenson: Financial results for the quarter were released after the close today. The press release may be accessed on NMI's website, located at nationalm.my.com under the investors staff. 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.
And risk based required assets of $1 4 billion.
Excess available assets were $1 2 billion.
In summary, we delivered standout financial results during the third quarter with continued growth in our high quality insured portfolio.
Record top line performance favorable credit experience and continued expense efficiency driving record bottom line profitability and strong returns.
With that let me turn it back to Adam Thank.
Thank you Ravi.
Overall, we had a terrific quarter once again delivering significant new business production continued growth in our high quality and short portfolio and record financial performance looking forward, while the macro environment continues to evolve we are encouraged by the tremendous resiliency that we've seen in the economy and housing market thus far.
John Swenson: If, until 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. Further, someone 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-gab measures. In today's press release and on our website, we provided a reconciliation of these measures to the most comparable measures under GAB.
Sure and are confident that the disciplined approach we've taken to managing our business from day, one we will continue to drive our performance.
Bradley Shuster: Now we'll turn the call over to Brad. Thank you, John, and good afternoon, everyone. I'm pleased to report that in the third quarter, national M.I, again delivered standout operating performance, continued growth in our insured portfolio and records financial results. Our lenders and their borrowers continued to turn to us for critical, down payment support. And in the third quarter, we generated 11.3 billion of NIW volume, ending the period with a record of 194.8 billion of high-quality, high-performing insurance and force.
We have a strong customer franchise.
Talented team driving us forward everyday and 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 delivering differentiated growth returns and value for our shareholders. Thank you for joining us today I'll now ask the operator to come back on so we can take your questions.
Thank you we will now begin the question and answer session to ask a question you might Kris Star then one on your telephone keypad.
If yours mistaken sorry, please pickup your handset before pressing the case.
If any time your question has been addressed and you would like to withdraw please christa Sanjay.
Bradley Shuster: While the MAPRIL risk environment continues to evolve, we remain greatly encouraged by the resiliency of the housing market, the exceptional performance of our high-quality insured portfolio, and the broader success we're achieving across our business. In Washington, our conversations remain active and constructive. Policy makers, regulators, the FHFA and the GSEs remain highly focused on promoting broader access and affordability to the housing market. And we believe there is broad recognition of the unique and valuable role that the private mortgage insurance industry plays in this regard.
Your first question comes from Rick Shane with J P. Morgan. Please go ahead.
Thanks, guys for taking my question and I hope everybody is well.
Just wanted to talk a little bit about the expense ratio again.
It ticked down in 'twenty, three will be a step forward versus 'twenty two.
At what point do you sort of a some topically approach the threshold where.
You don't continue to build operating leverage and what level would you see that sort of.
What ratio would you see that being.
Yes, Rick it's nice to hear from you.
Ill start and then let Ravi.
Bradley Shuster: That national MI, we recognize the need to provide all borrowers with a fair and equitable opportunity to access the housing market, establish a community identity, and build long-term wealth through home ownership. Our products and the support we provide are more important today than ever before. And we see an increasing opportunity to support borrowers at a time when they need us most. Overall, we had a terrific third quarter and our well-position to continue to lead with impact and drive value for our people, our customers and their borrowers, and our shareholders going forward.
Answer with specifics about expense ratio in the quarter, and where it might trend, but I want to offer a broader perspective on.
On our operating expenses and how we think about it really is a strategic matter broadly speaking we have always been focused on managing our business with discipline and efficiency and candidly. We believe that we have a sustained expense advantage with the lowest absolute dollars of operating expense in the semi sector by a wide wide margin in terms of the benefits that.
We always talk about that Youll recognize the financial impact is an obvious one right lower expenses allow us to generate consistently stronger returns naturally, but there's also a real strategic aspect real strategic value, that's often overlooked and feeds directly into our risk management approach and the flexibility.
Adam Pollitzer: With that, let me turn it over to Adam. Thank you, Brad, and good afternoon everyone. National MI continued to outperform in the third quarter, delivering significant new business production, strong growth in our insured portfolio, and record financial results. We generated $11.3 billion of NIW volume and ended the period with a record $194.8 billion of high quality, high-performing insurance and force. Total revenue in the third quarter was a record $148.2 million, and we delivered record-gatinet income of $84 million, or $1 per diluted share, and in 19% return on equity.
With that we have to more actively shape the profile of our high quality insured portfolio as a financial matter, we write business and price our policies to generate an adequate return on capital right, we need premium revenue coming in to absorb our operating expenses, our loss cost our funding needs and taxes and with our expand.
Advantage, we simply don't need to have a higher concentration of higher risk higher yielding business coming in to cover our operating base.
So we can and have been achieving best in class returns. While also taking the most proactive and disciplined approach to managing our mix of business and a large part of that flexibility and our ability to deliver consistently strong returns while being the most discerning from a risk standpoint actually traces of loss of the discipline that we continue to.
Adam Pollitzer: Overall, we had an exceptionally strong quarter and are confident as we look ahead. The macro environment and housing market in particular have remained resilient in the face of increasing interest rates. We see a sustained new business opportunity with our lender customers and their borrowers continuing to rely on us in size for critical down payment supports. We have an exceptionally high quality insured portfolio, and our credit performance continues to stand ahead. Our persistency remains well above historical trends, and, when paired with our current NIW volume, has helped to drive continued growth and embedded value gains in our insured book.
Kerry on the operating expense side, so I'll, let Ravi answer the specifics about operating expense, but we really think about expense advantage as a core strategic advantage for us not just the numbers in our model expense ratio alright.
Adam I would just add that.
That strength comes from and that advantage comes from just us having the smallest head count by a wide margin and we also benefit from a de novo. It platform that is scalable efficient and flexible and a lot of that benefit came through again in Q3 with our 21, 3%.
Adam Pollitzer: We've led with innovation in the risk transfer markets, and have secured comprehensive reinsurance coverage under the all of the policies we've ever originated. And we continue to manage our expenses and capital positions with discipline and efficiency, building a robust balance sheet that is supported by the significant earnings power of our platform. Notwithstanding these strong positives, however, macro risks do remain, and we have maintained a proactive stance with respect to our pricing, risk selection, and reinsurance decisioning.
Expense ratio and really we've talked about this in the past Rick.
We do expect our dollars of Opex to grow because we continue to invest in people technology risk management and in growth.
But we're really happy about the way our expense profile in particular has performed over time and our expense ratio.
Really what we're focused on now opex.
We think we're going to continue to.
And our long term long term range of mid to mid to low Twenty's and were delighted to achieve that in Q3, and we're certainly optimistic about managing in a disciplined manner and driving efficiency for the future.
Adam Pollitzer: It's an approach that has served us well and continues to be the prudent and appropriate course. More broadly, we've been encouraged by the continued discipline that we've seen across the private MI market, underwriting standards remain rigorous, and the pricing environment remains balanced and constructive.
Yes.
The rate of improvement is obviously going to slow from such a low base. We've got the lowest expense ratio broadly the lowest dollars of expense absolutely in the in the industry. So, we'll see where that trends going forward, but right now we're in a really good position with the efficiency we care.
Adam Pollitzer: Overall, we had a terrific quarter, delivering strong operating performance, continued growth in our insured portfolio, and record financial results. 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.
No I appreciate the comments on the strategic benefit or advantage that creates as well I mean at the end of the day I, probably am a little more numbers in the model.
Guy and focused on that but it's.
Important observation as well thank you.
Ravi Mallela: With that, I'll turn it over to Ruddy. Thank you, Adam. We delivered record financial results in the third quarter with significant new business production, strong growth in our high quality and sure portfolio, record top line performance, favorable credit experience, continued expense efficiency and record bottom line profitability.
Okay.
Your next question comes from Bose, George with VW. Please go ahead.
Good afternoon.
It looks like your provision for new notices has trended down, especially compared to <unk>, where it was up pretty meaningfully.
Accurate and can you just discuss drivers for reserving for new notices and how thats kind of changed over the past year.
Ravi Mallela: Total revenue in the second quarter was a record 148.2 million. Gap net income was a record 84 million or $1 per diluted share, and our return on equity was 19%. We generated 11.3 billion of NIW, and our insurance and forest grew to 194.8 billion, up 2% from the end of the second quarter and 9% compared to the second quarter of 2022. 12 month persistency was 86.2% in the third quarter compared to 86% in the second quarter.
So both nice to hear from you certainly new defaults you know what I would say generally they've had the same attributes as they have in recent quarters.
I would highlight to you is that right now we've been in a rising home price environment.
We've essentially had three additional months to model into our reserving process.
I would just say broadly speaking, we tend to anchor to downside scenarios and that really does come into our Q3 position, but we've moderated the expectation for a strange just given the broad resiliency in the macro environment and frankly, how house prices have been performing so far and so you see that change sort of quarter.
Ravi Mallela: Persistency continues to serve as an important driver of the growth and embedded value of our insured portfolio. Net premiums earned in the third quarter were a record 130.1 million compared to 126 million in the second quarter. We earned 864,000 from the cancellation of single premium policies in the third quarter compared to 1.1 million in the second quarter. Net yield for the quarter was 27 basis points, up from 26.7 basis points in the second quarter.
Over the quarter driven by those aspects.
Definitely makes sense. Thanks, and then actually you have a statistic that quarterly run off.
And I was just curious how that ties in with the.
The annual persistency, because that number is kind of ticked up.
Over the last couple of quarters is that just a quarterly persistency or just yet can you just discuss that.
That's exactly right so as long as our 12 month persistency number that we look at it simply measures the business that was on our books 12 months earlier, what percentage of that remains as of September 30 quarterly run off typically run off as the universe of persistency, but what thats looking at is the rate of runoff of the business that was on our books as of June 30 of this year, how much is run off by the time, we get.
Ravi Mallela: Core yield, which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings, was 33.9 basis points, up from 33.8 basis points in the second quarter. Investment income was 17.9 million in the third quarter compared to 16.5 million in the second quarter. Total revenue was a record 148.2 million in the third quarter, up 4% compared to the second quarter and 13% compared to the third quarter of 2022. Underwriting and operating expenses were 27.7 million in the third quarter compared to 27.4 million in the second quarter.
As of September 30.
Okay. So if I.
Annualized that does it suggest that the runoff the persistency is kind of a better at a quarterly pace versus what.
What we see on the annual number.
Or is that not sort of doable.
It's going to be the inverse right so rate of run off as the universe of persistency that which leaves us isn't obviously staying on our books, but we've talked for a while that our persistency in terms of the trend.
Going forward right now our persistency is well above historical trends, we expect that that will remain the case, but we're probably getting to upper bound as to where it will sit and may see some migration, whether it's a touch off a touchdown as as we roll forward.
Ravi Mallela: Our expense ratio was 21.3% compared to 21.8% in the second quarter. We had 4,594 defaults as of September 30th compared to 4,349 as of June 30th and our default rate was 74 basis points at quarter end. Claims expense in the third quarter was 4.8 million compared to 2.9 million in the second quarter. We have a uniquely high quality insured portfolio and our Claims experience continues to benefit from the discipline with which we have shaped our book and the strong position of our existing borrowers as well as the broad resiliency we're seeing in the housing market.
Okay, great. Thanks.
Your next question comes from Maxim <unk> with <unk> Securities.
Please go ahead.
Hi, good evening I'm, calling in for Mark Hughes, I'm, sorry, if I missed it but where there any share buybacks this quarter.
Yes, there were and in Q3, we bought back.
$19 2 million of shares approximately 675000 shares in that in Q3.
Ravi Mallela: Interest expense in the quarter was 8.1 million. Net income was a record 84 million or $1 per diluted share. Up 5% compared to 95 cents per diluted share in the second quarter. Order, and 12% compared to 90 cents per deluded share in the third quarter of 2022. Total cash and investments were 2.4 billion at quarter end, including 134 million of cash and investments at the holding company. Shareholder's equity as of September 30 was 1.8 billion, and book value per share was $21.94.
Thank you and the question was asked last quarter figured out.
It'd be helpful to get your updated view on what concerns you. The most right now in the current environment with as you mentioned rising prices.
Still low default rates.
Yes.
I'd say, it's our job as risk managers to look where concerns around every corner and we certainly do that so we stress ourselves around a whole variety of matters.
We look internally, but are there things around how we're structured what we're focused on what we're doing that should give us cause for concern thankfully there aren't we're performing at an exceptionally high level and delivering real core operating strength across our portfolio across.
Ravi Mallela: Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio, was $24.56. Up 4% compared to the second quarter, and 18% compared to the third quarter of last year. In the third quarter, we repurchased 19.2 million dollars of stock, retiring 675,000 shares at an average price of $28.51. As of September 30, we had 208 million of repurchase capacity remaining under our existing program. At quarter end, we reported total available assets under PMures of 2.6 billion, and risk-based required assets of 1.4 billion. Access available assets were 1.2 billion.
Our people our culture, our expense base, our it platform. So everything that it takes for us to manage the business internally and so then we look externally and we spent some time talking for a while now that we're in an environment, where even though we've seen tremendous resiliency in the economy broadly in the housing market in particular, we still.
I think that risk is elevated to a degree right. We're not at the back end of whatever we're in right now and candidly over the last several months, we've seen let's say the volume in terms of external risk factors, perhaps turn turn off a bit right. We have significant incremental geopolitical instability, we have the sector.
The U S government shutdown a few weeks forward, we still have long rates that are that are increasing with uncertainty as to what that will ultimately mean for the economy and so when we're focused on risk right now the items that we're most focused on that we're most concerned about naturally are those that will touch borrower performance in consumer performance.
Ravi Mallela: In summary, we delivered stand-out financial results during the third quarter, with continued growth in our high quality and shared portfolio, record top line performance, favorable credit experience, and continued expense efficiency, driving record bottom line profitability and strong returns.
If the macro is house price paths, it's where unemployment might go.
In response to all of these environmental factors that surround us.
That's helpful. Thank you.
Adam Pollitzer: With that, let me turn it back to Adam. Thank you, Ravi. Overall, we had a terrific quarter. Once again, delivering significant new business production continued growth in our high quality and short portfolio and record financial performance. Looking forward, while the macro environment continues to evolve, we are encouraged by the tremendous resiliency that we've seen in the economy and housing market thus far, and are confident that the disciplined approach we've taken to managing our business from day one will continue to drive our performance.
Your next question comes from Eric Hagen with <unk>. Please go ahead.
Hey, Thanks, Hope Youre doing well, Hey can you maybe elaborate on what youre seeing with respect to AR.
I think I heard you say, a balanced and constructive pricing market and are you may be surprised that it's not more competitive are being characterized that way just given how slow new origination activity is in the market.
No.
And it's a very good question.
And let me touch them, both on the origination environment itself as well as on the pricing environment I'll start with pricing, but broadly speaking we continue to be really encouraged by the discipline that we see across the market.
Adam Pollitzer: 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.
And what I'd say is it really deliberate approach that the industry is taking we've noted for a while now that rates have hard in what we call ladder higher in view of.
Adam Pollitzer: Taken together, we are well positioned to continue delivering differentiated growth, returns, and value for our shareholders.
Emerging macro risks over the last year, or so and we were able to achieve incremental pricing, where we believed it was both necessary and appropriate today.
Adam Pollitzer: Thank you for joining us today.
Operator: I'll now ask the operator to come back on so we can take their questions. Thank you. We will now begin the question in answer session. To ask a question, you may press star then one on your telephone keypad. If you're using a speaker phone, please pick up your handset before pressing the keys. If at any time your question has been addressed and you would like to withdraw, please press star then two.
Where we should be right. We're at a point where pricing is meaningfully higher than it was in mid 2022, and it's holding in a constructive way.
And from our vantage point.
We're still focused everyday on ensuring that we strike the right balance to fully and fairly support our customers and their borrowers.
Rick Shane: Your first question comes from Rick Shane with JP Morgan. Please go ahead. Thanks guys for taking my question and I hope everybody's well.
But also recognize that macro risk.
From a forward look standpoint is still elevated and we need to account for that through price and also for us importantly through through risk selection and so we're not surprised at all.
Adam Pollitzer: Just wanted to talk a little bit about the expense ratio. Again, tick down and 23 will be a step forward versus 22. At what point do you sort of asymptotically approach the threshold where you don't continue to build operating leverage and what level would you see that sort of, you know, what ratio would you see that being? Yeah, Rick, one nice to hear from you.
Think that the heavy investment in the sector and the deployment of risk based pricing tools lends itself to great value in an environment, where the potential for risk is still more elevated.
You touched on a question around origination volume.
And obviously look we're not where we were at at key points during the pandemic with record years in 2000, 22021, and even a bit more in 2022, but it is still a very constructive environment new business environment from an M&A standpoint, right hours is primarily a purchase driven product and to <unk>.
Ravi Mallela: I'll start and then let Ravi answer with specifics about expense ratio in the quarter and where it might trend, but I want to offer a broader perspective on our operating expenses and how we think about it really as a strategic matter. For all these speaking, we have always been focused on managing our business with discipline and efficiency, and kind of we believe that we have a sustained expense advantage with the lowest absolute dollars of operating expense in the MI sector by a wide margin.
Give you a sense the purchase origination market. This year is expected to come in at about one three trillion, which is exactly the same size as in 2019 2019 was a very constructive <unk> new business environment and as we look forward to next year general forecasts contemplate around a one 4% one five trillion dollar purchase mark.
Ravi Mallela: In terms of the benefits that we always talk about that you'll recognize, the financial impact is an obvious one, right? Lower expenses allow us to generate consistently stronger returns naturally, but there's also a real strategic aspect, real strategic value that's often overlooked, and it feeds directly into our risk management approach and the flexibility that we have to more actively shake the profile of our high quality and short portfolio. As a financial matter, we write business and price our policies to generate an adequate return on capital, right?
Up from 2023 up from our pre pandemic normalized level in 2019, and so yes. The headlines are obviously about.
A slowing level of activity on the origination side, we are seeing that stress emerge through through the originators themselves, but ours is a primarily purchase focus market. The new business opportunity is sustained at an attractive point.
Yes.
Ravi Mallela: We need premium revenue coming in to absorb our operating expenses, our loss costs, our funding needs, and taxes, and with our expense advantage, we simply don't need to have a higher concentration of higher risk, higher yielding business coming in to cover our operating base. And so we can and have been achieving best in class returns while also taking the most proactive and disciplined approach to managing our mix of business and a large part of that flexibility and our ability to deliver consistently strong returns while being the most discerning from a risk standpoint actually traces a lot to the discipline that we continue to carry on the operating expense side.
That's really helpful.
So is there a scenario where delinquencies could pick up.
At some point and I recognize that they are very very low and stable to begin with but.
Is there a scenario where delinquencies could pick up but the severity rate that's applied to those delinquencies.
Stays stable or even comes down or is it rational to assume that they kind of move together.
If you will so it's a good question.
Hey.
Expectations for both frequency and severity. So one what we tend to see happen is that the incidents of default is tied most directly to unemployment when borrowers state stress because they've lost their jobs and importantly, they can't find reemployment opportunities very quickly that's when we might see defaults increase the number of.
Ravi Mallela: So I'll let Ravi answer the specifics about operating expense, but we really think about expense advantage as a core strategic advantage for us, not just the numbers in a model expense ratio. And Adam, I would just add that where that strength comes from and that advantage comes from just us having the smallest headcount by a wide margin. And we also benefit from a Denova IT platform that's scalable, efficient, and flexible. And a lot of that benefit came through again in Q3 with our 21.3% expense ratio.
Before the actual reserve that we established against those defaults, where the severity assumption, but also the frequency assumption comes into play so severity being.
Default progresses to a claim payment, which is ultimately a foreclosure or some other means through which a borrower has been removed from their home and we're presented with a claim how much do we owe and frequency as well, what's the likelihood that that progression itself will happen.
The incidents of default tied to primarily to unemployment both frequency and severity are more heavily influenced by house price paths and so generally speaking we would assume that there's going to be a reasonably close relationship between house price path.
Ravi Mallela: And really, we've talked about this in the past, Rick. We do expect our dollars of OpEx to grow because we continue to invest in people, technology, risk management, and in growth. But we're really happy about the way our expense profile in particular has performed over time. And our expense ratio is really what we're focused on. Now, OpEx, we think we're going to continue to be in our long-term range of mid to low 20s and we're delighted to achieve that in Q3.
Unemployment levels, because obviously in a supply demand driven environment demand as <unk> gainful employment by many prospective borrowers, but that's not always the case, if we saw an increase in default activity, but we didnt see a corresponding stream come through the housing market in terms of house price path, we wouldn't necessarily see I'll call. It a one for one.
<unk>, where we have an increase in defaults, that's paired with a fundamental shift in the reserving assumptions.
Ravi Mallela: And we're certainly optimistic about managing in a discipline and manner and driving efficiency for the future. Yeah, but rate of improvements, obviously, going to slow from such a low base. We've got the lowest expense ratio, broadly, the lowest dollars of expense, absolutely in the industry. So we'll see where that trends going forward. But right now, we're in a really good position with the efficiency we care.
Right and Adam I think you've mentioned this in the past that it's at.
For them to recognize that we don't apply sort of blanket assumptions too.
To our to our reserving process and so we do a loan level analysis every quarter and these are macro driven models that allow us to come to a conclusion about our reserving process base.
Rick Shane: I appreciate the comments on the strategic benefit or advantage that it creates as well. I mean, at the end of the day, I probably am a little more numbers in the model guy and focus on that, but it's an important observation as well.
Based on the individual profile of each of our defaulted borrowers.
Great.
Bose George: Thank you The next question comes from Bose George with KBW. Please go ahead. Yeah, good afternoon. It looks like your provision for new notices has trended down, especially compared to one queue where, you know, was up pretty meaningfully. I mean, is that accurate and can you just discuss drivers for reserving for new notices and how that's kind of changed over the past year.
That's really helpful. Thank you guys very much.
Your next question comes from Daniel <unk> with Bank of America.
Please go ahead.
Hi, Good afternoon, your average portfolio yields to increase at a pretty nice clip, okay, you're talking about like the dynamic between the yield on new investments versus the overall portfolio yield.
So we've seen yield inflect higher over the last.
Last few quarters.
Bose George: So, you know, Bose nice to hear from you. Certainly new defaults, you know, what I would say generally they've had the same attributes as they have in recent quarters. You know, what I would highlight to you is that we've been in a rising home price environment. We've essentially had three additional models amongst the model into our reserving process. And you know, I would just say broadly speaking, you know, we tend to anchor to downsides scenarios and that really does, you know, come into our Q3 position, but we've moderated the expectation for a strain just given the broad resiliency in the macro environment and frankly how house prices have been performing so far. And so you see that change sort of quarter of a quarter driven by those aspects. Okay, it definitely makes sense. Thanks.
And.
And.
And so from that perspective, it's generally it's been generally stable and it has had a favorable trending in Q3.
And what we're seeing with respect to net yield is it's been 27 basis points in our core year yield was 33 nine basis points, where both were up modestly and I think we're benefiting from both the continued increases in persistency and the rate actions, we've taken and those cumulative gains we've achieved and new business pricing over the last year.
Plus and it's balanced somewhat by the high quality production that we generate and sometimes and that naturally comes in sort of a different rate profile.
Also just to round it out so we think about yield and the headlines word yield across both the premium yield on the in force portfolio and what it allows us to generate from our premium revenue standpoint, we certainly been reflecting higher there for several quarters now which is terrific. We also talk about yield in an increasingly focused way in terms of the investment portfolio and from an investor.
Bose George: And then actually you have a statistic that quarterly run off. And I'm just curious how that ties in with the annual persistency because that number is kind of picked up. You know, the last couple of quarters. Is that just a quarterly persistency or just yet can you just discuss that? Yeah, it is that exactly right. So those are 12 month persistency number that we look at. It simply measures the business that was on our books 12 months earlier.
Portfolio standpoint, we're seeing the same dynamic the pre tax book yield on our portfolio was two 8% and it continues to move higher as lower yielding maturities run off and we're investing investing at meaningfully higher new money rates to give you a spread for that Delta that you are focused on we're currently seeing new money opportunities at a blended average rate of around <unk>.
Bose George: What percentage of that remains as a September 30th. But quarterly runoff. Technically, runoff is the inverse of persistency. But what that's looking at is the rate of runoff for the business that was on our books as June 30th of this year. How much has run off by the time we get the September 30th? Okay, so if I annualize that does it suggest that the runoff the persistency is kind of better at that that a quarterly pace versus what.
Five 5% compared to the two 8% book yield on the portfolio.
That's great detail. Thank you and then you mentioned earlier you have like a lot of activity companies with policymakers I was just curious if you're seeing any like regulatory developments that could truly change the business or like the industry or are things relatively quiet at the moment.
Bose George: You know what's what we see on the annual number or is that not sort of doable? No, it's going to be the inverse right so rate of runoff is the inverse of persistency that which leaves us. Is and obviously staying on our books. But we talk for a while that our persistency in terms of the trend going forward. Right now, our persistency is well above historical trends. We expect that will remain the case, but we're probably getting to upper bounds as to where it will sit and may see some migration, whether it's a touch off a touchdown as as we roll forward.
Yes, Hi, Brad.
Bose George: Okay, great. Thanks.
So as we said, we do have active dialogue with the FHFA and the Gse's.
We always have and we value the consistency and transparency of that engagement.
As you can imagine there are a range of items that we discuss.
Most recent conversations.
Surround access affordability and fairness and those remain points of focus.
Among a broad range of other issues, but.
Nothing really.
Unknown Attendee: The next question comes from next week with true securities. Please go ahead.
Critical pending right at the moment.
Okay. That's all for me thank you.
Once again, if you wish to ask a question. Please press Star then one.
Unknown Attendee: Good evening. I'm calling in for Mark Hughes. I'm sorry if I missed it, but were there any share buybacks this quarter? Yes, there were. And in Q3, we bought back 19.2 million of shares, approximately 675,000 shares. And that's in. Thank you, three. Thank you. And the question was asked last quarter, I figured I'd be helpful to give you updated view on what concerns NMI the most right now in the current environment with, you know, as you mentioned, rising prices and still low default rates.
Your next question comes from Geoffrey Dunn with Dowling. Please go ahead.
Thanks, Good afternoon.
Yeah.
I wanted to ask you about.
Vintage seasoning and specifically.
There is going to come a time where the.
'twenty two 'twenty three blocks higher loan vintages.
Interest rates may start to season out and take more effect on the earning.
Its profile and credit results.
I'm curious as you look at the 19 through 21 vintages.
Those developing along the same curves or is.
Low interest rate profile, maybe elongated those curves.
Unknown Attendee: Yeah, well, I say, it's our job as risk managers to look for concerns around every corner and we certainly do that. So we stress ourselves around a whole variety of matters. We look internally, right? Are there things around how we're structured, what we're focused on, what we're doing? That should give us cost for concerns. Thankfully, there aren't. We're performing at an exceptionally high level and delivering real core operating strength across our portfolio, across our people, our culture, our expense base, our IP platform.
And is there any potential for that may be softening from the 22% and 23 had a couple of years out from now.
Yes, Jeff it's a good question and look obviously, we spent a lot of time talking about how our existing borrowers broadly speaking are so well situated to manage through both good times and also to the extent that a stress environment emerges.
Because they have significant embedded equity in their homes because were in an environment today with high employment very low unemployment there all gainfully gainfully employed and because they are locked in with record low 30 year fixed rate notes that provide them with a manageable debt service obligation honestly as we look forward as we sort of proved.
Unknown Attendee: So everything that it takes for us to manage the business internally. And so then we look externally and we spend some time talking for a while now that we're in an environment where even though we've seen tremendous resiliency in the economy broadly and the housing market in particular, we still think that risk is elevated to a degree, right? We're not at the back end of whatever we're in right now. And candidly over the last several months, we've seen it's a volume in terms of external risk factors, perhaps turn up a bit, right?
Breast that production stream from 'twenty, two and through 'twenty, three we're seeing more and more borrowers in the portfolio that has equally strong credit characteristics as those who came into the portfolio in earlier period, but theyre carrying higher note rates and so what does that mean right what does that mean for portfolio performance going forward.
Unknown Attendee: We have significant incremental geopolitical instability. We have the specter of a US government shutdown a few weeks forward. We still have long rates that are increasing with uncertainty as to what that will ultimately mean for the economy. And so when we're focused on risk right now, the items that we're most focused on that we're most concerned about, naturally, are those that will touch borrowed performance and consumer performance, if the macro, if house price paths, it's where unemployment might go in response to all of these environmental factors that surround us. That's helpful. Thank you.
One critical pieces that they are we're still seeing the same rigor the same.
From an underwriting standpoint, that's applied on the origination side that Hasnt shifted. These are borrowers that are fully vetted that are tested where their ability to pay and support their mortgages is evaluated and theres an affirmative decision made upfront. So thats a positive even though the rate itself as higher these are borrowers who have obviously been.
Being underwritten assuming that rate will carry forward and we're comfortable with the debt obligations that they have.
I think as we look forward the bigger driver of credit performance that we see that may shift to the experience we see for the 22 and 'twenty three production years compared to say 2019 through 2021, it's really the house price path right. The borrowers who are in their homes and in their loans.
Eric Hyden: The next question comes from Eric Hyden with BTRG. Please go ahead. Hey, thanks. Hope we're doing well. Hey, can you maybe elaborate on what you're seeing with respect to what I think I heard you say is a balanced and constructive pricing market. And are you maybe surprised that it's not more competitive or being characterized that way, just given how slow new origination activity is in the market?
For several years now benefited from an extraordinary house price depreciation environment through the course of the pandemic that we may not see again ever or certainly for for some time and so the the appreciated equity positions of the borrowers to begin to face stress just as a natural seasoning of the portfolio happens from the 22.
Adam Pollitzer: No, again, it's a very good question. And let me touch on both on the origination environment itself as well as on the pricing environment. I'll start with pricing. But broadly speaking, we continue to be really encouraged by the discipline that we see across the market. And what I say is a really deliberate approach that the industry is taking. We've noted for a while now that race could harden and what we call ladder higher in view of emerging macro risks over the last year or so.
123 book years.
Will will be different and its implication and then what we see now and we've seen for the 2019 through 2021 borrowers, but thats not necessarily related to the note rate. It's really just about the house price path going forward.
Okay at the end of the day MRO with a 35 DTI, whether they get there with an 8% mortgage or a 3% mortgage still has a 35 DTI a borrower with a 45 DTI, whether it's 8% or 3% note rate. It's still the same calculation in terms of their all of their debt service coverage.
Adam Pollitzer: And we were able to achieve incremental pricing where we believed it was both necessary and appropriate. Today, where we should be right, we're out of point we're pricing is meaningfully higher than it was in mid 2022 and it's holding in a constructive way. And from our vantage point, we're still focused every day on ensuring that we strike the right balance to fully and fairly support our customers and their borrowers. But also recognize that macro risk from a forward look standpoint is still elevated and we need to account for that through price and also for us importantly through risk selection.
Okay, and then as you think about.
The assumptions, you're making for your incremental reserving for.
Particularly the assumption that home prices.
Our negative can you anchor given the tightness of the money of the housing supply.
Look at how negative Ken we anchor I'd say, we have a responsibility to use to establish a best estimate but for reserving purposes, we've talked for some time now.
Adam Pollitzer: And so we're not surprised at all. We think that the heavy investment in the sector and the deployment of risk based pricing tools lends itself to great value in an environment where the potential for risk is still more elevated.
And that we always aim to take and appropriate but also an appropriately conservative view and so in practice what that generally means is that we do anchored more to our downside downside scenarios when setting our reserve position.
Adam Pollitzer: You touched on, you know, a question around origination volume. And obviously, but we're not where we were at at peak points during the pandemic with record years in 2020, 2021 and even a bit more in 2022. But it is still a very constructive environment, new business environment from an MI standpoint, right hours is primarily a purchase driven product. And to give you a sense, you know, the purchase origination market this year is expected to come in at about 1.3 trillion, which is exactly the same size as in 2019.
We naturally have to balance that by what were actually seeing today, what we see today have to inform at all times, our view of what's going to happen tomorrow.
As Ravi mentioned at September 30, we did moderate our expectations for economic strain and house price declines that are embedded in our reserve position, but we also are still embedding a stressed bias in our analysis.
Adam Pollitzer: 2019 was a very constructive MI new business environment. And as we look forward to next year, general forecasts contemplate around a 1.4 to 1.5 trillion dollar purchase market up from 2023 up from a pre pandemic normalize level in 2019. And so yes, the headlines are obviously about a slowing level of activity on the origination side. We're seeing that stress emerged through through the originators themselves. But hours as a primarily purchased focused market, the new business opportunity is sustained at an attractive point. Yeah, that's really helpful.
Okay alright, thank you.
This concludes our question and answer session I will now hand back for closing remarks.
Well. Thank you again for joining us we will be hosting our annual Investor day on Thursday November 16th in New York and will be participating in the Goldman Sachs Financial Services Conference on December five we look forward to speaking with you again soon.
Okay.
This conference has now concluded. Thank you for participating you may now disconnect.
[music].
Adam Pollitzer: Hey, so is there a scenario where delinquencies could pick up, you know, at some point I recognize that they're, you know, very, very low and stable to begin with, but, you know, is there a scenario where delinquencies could pick up but the severity rate that applied to those delinquencies, you know, stays stable or even comes down, or is it rational to assume that they kind of move together, if you will? So it's a good question.
Adam Pollitzer: I'd say the expectations for both frequency and severity. So once what we tend to see happen is that the incidence of default is tied most directly to unemployment, when borrowers, states, threats, because they've lost their jobs, and importantly, they can't find reemployment opportunities very quickly. That's when we might see defaults increase the number of defaults, the actual reserve that we establish against those defaults, where the severity assumption but also the frequency assumption comes into play, right, so severity being, if this default progresses to a coin payment, which is ultimately a foreclosure or some other means through which a borrowers been removed from their home, and we're presented with a claim, how much do we owe?
Adam Pollitzer: And frequency is, well, what's the likelihood that progression itself will happen? The incidence of default tied to primarily unemployment, both frequency and severity are more heavily influenced by house price paths. And so generally speaking, we would assume that there's going to be a reasonably close relationship between house price path and unemployment levels, because obviously in a supply demand driven environment, demand is tied to gainful employment by many prospective borrowers, but that's not always the case.
Adam Pollitzer: If we saw an increase in default activity, but we didn't see a corresponding strain come through the housing market in terms of house price paths, we wouldn't necessarily see, I'll call it a one-to-one relationship, where you have an increase in default that's paired with a fundamental shift in the reserving assumptions. Right, and Adam, I think you mentioned this in the past that it's important to recognize that we don't apply blanket assumptions to our reserving process.
Okay.
Adam Pollitzer: And so we do a loan level analysis every quarter, and these are macro driven models that allow us to come to a conclusion about a reserving process based on the individual profile of each of our defaulted borrowers. Right, hey, that's really helpful.
Unknown Attendee: Thank you guys very much.
Daniel Richem: The next question comes from Daniel Richem, the Think of America. Please go ahead. Hi, afternoon. Your average portfolio yields are going to increase in a pretty nice clip. Can you talk about the dynamic between the yield on new investments versus the overall portfolio yield? So we've seen yield inflect higher over the last few quarters, and, you know, and, you know, and so, you know, from that perspective, it's generally, it's been generally stable and it's had a favorable trending in Q3.
Daniel Richem: And, you know, what we're seeing with respect to net yield is it's been 27 basis points in our courier yield was 33.9 basis. Dispoints, both were up modestly. And I think we're benefiting from both the continued increases in persistency and the rate actions we've taken and those cumulative gains we've achieved in new business pricing over the last year plus. And it's found somewhat by the high quality production that we generate. And sometimes that naturally comes in sort of a different rate profile.
Daniel Richem: Of course portfolio of what it allows to generate from a premium revenue standpoint, we've certainly been selecting higher there for several quarters now, which is terrific. We also talk about yield in an increasingly focused way in terms of the investment portfolio. And from an investment portfolio standpoint, we're seeing the same dynamic. The pre-tax book yield on our portfolio was 2.8%. And it continues to move higher as lower yielding maturities run off.
Daniel Richem: And we're investing, investing at meaningfully higher new money rates to give you a spread for that delta that you're focused on. We're currently seeing new money opportunities at a blended average rate of around 5.5%. Compared to the 2.8% book yield on the portfolio. That's great detail.
Bradley Shuster: Thank you. And then you mentioned earlier you have a lot of active comparison with policymakers. I was just curious if you see any like regulatory developments that could truly change the business or like the industry or things relatively quiet at the moment. Yeah, hi, Brad. So as we said, we do have active dialogue with the FHFA and the GSEs. We always have and we value the consistency and transparency of that engagement. As you can imagine, there are a range of items that we discuss. Our most recent conversations around access affordability and fairness. And those remain points of focus among a broad range of other issues.
Bradley Shuster: But nothing really critical pending right at the moment.
Unknown Attendee: Okay, that's all for me. Thank you. Once again, if you wish to ask a question, please press start in one.
Jeffrey Dunes: Your next question comes from Jeffrey Dunes with Darling. Please go ahead. Thanks. Good afternoon. I wanted to ask you about vintage seasoning. And specifically, there's going to come a time where the 22, 23 blocks, higher loan ventages, higher interest rates, they stick to season out and take more effectively the earnings profile and credit results. But I'm curious, as you look at the 19 through 21 ventages, are those developing along the same curves or is the unique low interest rate profile, maybe elongating those curves?
Jeffrey Dunes: And is there any potential for that maybe softening from the 22 or 23 hit a couple years off from now? Yeah, it's a good question. You know, and look at it. So we spent a lot of time talking about how our existing borrowers broadly speaking are so well situated to manage through both. Good times and also to the extent that a stress environment emerges because they have significantly better equity in their homes, because we're in an environment today with high employment, very low employment, they're all gainfully, gainfully employed.
Jeffrey Dunes: And because they're locked in with record low 30 year fixed rate notes that provide them with a manageable debt service obligation. Honestly, as we look forward, you know, as we sort of progress the production stream from 22 and through 23, we're seeing more and more borrowers in the portfolio that have equally strong credit characteristics as those who came into the portfolio in earlier periods, but they're carrying higher note rates. And so what does that mean?
Jeffrey Dunes: What does that mean for portfolio performance going forward? I think one critical piece is that they are, we're still seeing the same rigor, the same rigor from an underwriting standpoint that supplied on the origination side, that hasn't shifted. These are borrowers that are fully vetted, that are tested where their ability to pay and support their mortgages is evaluated and there's an affirmative decision made upfront. So that's the positive. Even though the rate itself is higher, these are borrowers who've obviously been, you know, been underwritten assuming that rate will carry forward and were comfortable with the debt obligations that they have.
Jeffrey Dunes: As we look forward, the bigger driver of credit performance that we see that may shift the experience we see for the 22 and 23 production years compared to say 2019 through 2021. It's really the house price that the borrowers who are in their homes and in their loans for several years now benefited from an extraordinary house price appreciation environment through the course of the pandemic that we may not see again ever or certainly for some time.
Jeffrey Dunes: And so the the appreciated equity positions of the borrowers who begin to face stress just as a natural seasoning of the portfolio happens from the 22 and 23 book years will will be different in its implication than what we see now and we've seen for the 2019 through 2021 borrowers, but that's not necessarily related to the note rate. It's really just about the house price that going forward. Okay, at the end of the day, borrow with a 35 BTI, whether they get there with an 8% mortgage or a 3% mortgage, still has a 35 BTI borrowers with a 45 BTI, whether it's an 8% or 3% note rate, it's still the same calculation in terms of their call of their debt service coverage.
Jeffrey Dunes: Okay, and then as you think about the assumptions you're making for your incremental reserving for particularly the assumption on home prices, how negative can you anchor given the tightness of the housing supply. Okay, so how negative can we anchor I think we have a responsibility to use to establish a best estimate, but for reserving purposes, we talk for some time that we always aim to take an appropriate, but also an appropriately conservative view.
Jeffrey Dunes: And so in practice, what that generally means is that we do anchor more to our downslides, downslides scenarios when setting our reserved position. We naturally have to balance that by what we're actually seeing today, what we see today has to inform at all times our view of what's going to happen tomorrow. And so as Ravi mentioned at September 30th, we did moderate our expectations for economic strain and house price declines that are embedded in our reserved position, but we also are still embedding a stress bias in our analysis.
Unknown Attendee: Okay, all right, thank you. This concludes that question on our position.
John Swenson: I'll now hand back to Clarke in your box. Well, thank you again for joining us. We'll be hosting our annual investor day on Thursday, November 16th in New York, and we'll be participating in the Goldman Sachs Financial Services Conference on December 5th. We look forward to speaking with you again soon. This conference is not concluded. Thank you for participating. You might now disconnect. John Swenson, John Swenson, John Swenson, John Swenson[inaudible]