Q4 2024 Essent Group Ltd Earnings Call
Thank you for standing by at this time I would like to welcome everyone to today's Essent Group Limited fourth quarter earnings call. All lines have been placed on mute to prevent any background noise. After the speakers' remarks, there will be a question and answer session. If you'd like to ask a question. During this time simply press star followed by the number one on your telephone keypad.
Pat.
And if you'd like to withdraw your question simply press Star one again, thank you.
Speaker Change: I would now like to turn the call over to Phil Stephano with Investor Relations. Please go ahead.
Phil Stephano: Thank you Greg Good morning, everyone and welcome to our call. Joining me today are Mark <unk>, Chairman and CEO and David Weinstock, Chief Financial Officer also on hand for the Q&A portion of the call is Chris Curran President of Essent Guaranty.
Phil Stephano: Our press release, which contains essence financial results for the fourth quarter and full year 2024 was issued earlier today and is available on our website I think group dotcom.
Phil Stephano: Our press release includes non-GAAP financial measures that may be discussed during today's call. A complete description of these measures and the reconciliation to GAAP may be found in exhibit a with our press release.
Phil Stephano: Prior to getting started I would like to remind participants that today's discussions are being recorded and will include the use of forward looking statements. These statements are based on current expectations estimates projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially.
Phil Stephano: For a discussion of these risks and uncertainties. Please review the cautionary language regarding forward looking statements in today's press release.
Mark: The risk factors included in our Form 10-K filed with the SEC on February 16th 2024, and any other reports and registration statements filed with the SEC, which are also available on our website now let me turn the call over to Mark.
Mark: Thanks, Phil and good morning, everyone earlier today, we released our fourth quarter and full year 2024 financial results.
Mark: Credit quality and resilience in the housing and labor markets continued to drive credit performance, while interest rates remain a tailwind for persistency in investment income, although mortgage origination activity remains below historical levels, we anticipate that home buying demand is merely being postponed and given the level of rates and affordability. While there is always uncertainty in the.
Economic environment, given the strength of our balance sheet and our buy manage and distribute operating model. We believe essent is well positioned for a range of economic scenarios.
Mark: And now for our results for the fourth quarter of 2024, we reported net income of $168 million compared to $175 million a year ago on a diluted per share basis, we earned $1 58 for the fourth quarter compared to $1 64, a year ago.
Mark: For the full year, we earned $729 million or $6 85 per diluted share while our return on average equity was 14%.
Mark: As of December 31, our book value per share was $53 36, an.
Mark: An increase of 11% from a year ago.
Mark: As of December 31, our U S mortgage insurance in force was $244 billion or.
Mark: A 2% increase versus a year ago, our 12 month persistency on December 31 was 86% down about one point from last quarter on nearly 60% of our enforced portfolio has a note rate of five 5% or lower.
Mark: So persistency is likely peak, we continue to expect that the current level of mortgage rates will support elevated persistency in the near term.
Credit quality of our insurance in force remained strong with a weighted average FICO of 746, and a weighted average original LTV of 93% credit performance in the fourth quarter, primarily reflected both the aging of our portfolio and the typical seasonality of default behavior note. However that credit performance for the fourth quarter. So.
Mark: Impacted by approximately 2000 defaults in areas affected by Hurricanes Helene and Milton.
Mark: In addition, we are monitoring the potential impact of defaults from the California wildfires.
Mark: Dave will discuss defaults and reserves in more detail in a few moments.
Mark: On the mortgage insurance front, our industry remains competitive and strong credit card rails remain in place driven by the underpinnings established by the <unk>. After the global financial crisis. These guardrails combined with our <unk> edge credit engine enable us to selectively grow our high credit quality insurance in force, while generating strong returns.
Mark: We are pleased with our position in the marketplace and the unit economics that we are achieving on new business.
Mark: As a reminder, we price for new business, assuming a combined ratio of roughly 35% to 45%.
Mark: In the first quarter of 2025, we entered into two quota share transactions with a panel of highly rated reinsurers.
Mark: Forward protection for our 2025 and 2026 business.
Mark: We are pleased with our strong execution and committed to our programmatic reinsurance strategy, which helps to diversify our capital resources, while seeding a meaningful portion of our mezzanine credit risk at year end 2020 for approximately 97% of our portfolio is covered by some form of reinsurance.
Mark: <unk> had another strong year of performance, writing high quality GSE risk share business, while leveraging its fee based MGA services Essent re ended the year with annual third party revenues of approximately $80 million or third party risk in force was $2 2 billion.
Mark: Since 2014 Essent re has earned over $450 million of net income from its third party business and has contributed approximately $800 million to essence book value.
Mark: Our title operations incurred a pre tax loss of approximately $21 million in the prior year prior to prior to corporate allocations and we continue to maintain a long term view for this business. However, given it is levered to rates, we do not expect title will have any material impact on earnings over the near term.
Mark: Cash and investments as of December 31 were $6 3 billion and our new money yield in the fourth quarter remained over 5% for the <unk>.
Mark: Full year 2024, our investment yield was three 7% compared to three 5% in 2023.
Mark: Net investment income was $222 million in 2000, and 2024 up nearly 20% from 2023.
Mark: As of December 31, the carrying value of other invested assets is $304 million in ever to date. These investments have created $81 million of value.
Mark: As of December 31, we are in a position of strength with $5 6 billion and GAAP equity access to $1 $6 billion in excess of loss reinsurance and our pmiers sufficiency ratio of 178% with.
Mark: With our full year 2020 for operating cash flow of $852 million, our franchise remains well positioned from an earnings cash flow and balance sheet perspective.
Speaker Change: As a result of our strong financial performance and capital position I am pleased to announce that our board has approved an 11% increase in our quarterly dividend to <unk> 31 per share at the same time. Our board also approved a $500 million share repurchase authorization that runs through year end 2026, now let me turn the call over to Dave.
Mark: Sure.
Dave: Thanks, Mark and good morning, everyone. Let me review our results for the quarter and a little more detail.
Dave: For the fourth quarter, we earned $1 58 per diluted share compared to $1 65 last quarter and $1 64 in the fourth quarter a year ago.
Dave: Our U S mortgage insurance portfolio ended 2024 with insurance in force of $243 6 billion, an increase of $669 million shifts from September 30th and.
Dave: And an increase of $4 6 billion.
Dave: Or 2% compared to $239 1 billion at December 31, 2023.
Dave: Persistency at December 31, 2024 decreased to 85, 7% compared to 86, 6% at the end of the third quarter.
Dave: Net premium earned for the fourth quarter 2024, with $244 million and includes $16 $2 million of premiums earned by Essent re on our third party business and $16 $6 million of opinions earned by the title operations.
Dave: The average base premium rate for the U S mortgage insurance portfolio for the fourth quarter was 41 basis points and the average net premium rate was 35 basis points in the fourth quarter of 2024.
Dave: It's consistent with last quarter.
Dave: We expect that the average base premium rate for the full year 2025 will be largely unchanged from the fourth quarter rate of 41 basis points.
Dave: Consolidated net investment income for full year, 2024 was $222 1 million compared to $186 $1 million for the full year 2023 due to growth in the investment portfolio and investing at higher yields than the book yield of our existing portfolio.
Dave: Net investment income for the fourth quarter was relatively flat to the prior quarter.
Dave: Credit performance for the fourth quarter was affected by defaults in areas impacted by Hurricanes Helena Milton.
Dave: The provision for losses and loss adjustment expense on the U S mortgage insurance portfolio was $37 2 million in the fourth quarter of 2024.
Dave: Compared to $29 8 million in the third quarter of 2024 and $19 million in the fourth quarter a year ago.
Dave: During the fourth quarter total defaults increased by 20 533, which includes 20 119 defaults that we identified as hurricane related defaults.
Dave: Based on prior industry experience, we expect the ultimate number of hurricane related defaults that will result in claims will be less than the default to claim experience of non hurricane related defaults.
Dave: Our provision for losses on these hurricane default does reflect a higher cure rate assumptions and the estimates used on non hurricane defaults.
Dave: The provision for losses in the fourth quarter includes $8 million pertaining to the hurricane defaults, representing our best estimate of the ultimate loss to be incurred for claims associated with these defaults.
Dave: Looking forward, we will continue to gather information on this population of defaults and update our reserves as needed.
Dave: At December 31, the default rate on the U S mortgage insurance portfolio was $2 two 7% up 32 basis points from 195% at September 30 of 2024.
Dave: For the full year 2024, we recorded a net provision on the U S mortgage insurance portfolio of approximately $75 million with higher defaults, reflecting aging of the portfolio and the impact of the hurricanes.
Dave: Other underwriting and operating expenses in the fourth quarter were $71 million and included $26 7 million of total title expenses of which $8 $5 million of premiums retained by agents.
Dave: Our consolidated expense ratio was 28, 7% this quarter our.
Dave: Our expense ratio, excluding title, which is a non-GAAP measure was 19, 4% this quarter.
Dave: A description of our expense ratio, excluding title and a reconciliation of GAAP can be found in exhibit a of our press release.
Dave: The consolidated effective tax rate for full year, 2024 was 14, 7% and it could including the impact of $2 million of favorable discrete tax items.
For 2025, we estimate that the annual effective tax rate will be approximately 15, 5%, excluding the impact of any discrete items.
Dave: As Mark noted our holding company liquidity remains strong and includes $500 million of Undrawn revolver capacity under our committed credit facility.
Dave: At December 31, we had $500 million of senior unsecured notes outstanding and our debt to capital ratio was 8%.
Dave: At December 31, I think guarantees <unk> sufficiency ratio was strong at 178% with $1 $6 billion in excess available assets.
Dave: At quarter end Essent Guaranty statutory capital was $3 6 billion.
Dave: With a risk to capital ratio of nine eight to one.
Dave: Statutory capital includes $2 5 billion of contingency reserves at December 31.
Dave: During the full year 2020 for Essent guaranty paid dividends of $165 million to its U S holding company.
Dave: As of January one Essent guaranty can pay ordinary dividends of $397 million in 2025.
Dave: Quarter end Essent guaranty.
Dave: Which provided reinsurance to essent guaranty on certain policies originated prior to April one 2019 entered into a commutation and release agreement under which all of the outstanding risk in force was commuted back to Essent guaranty.
Dave: Essent Guaranty denser entered its insurance license effective December 31 2024.
Dave: Framed up $93 million of cash and investments at Essent Guaranty FTA as liquidity to the U S holding company.
Dave: As a result, there were no dividends from the insurance subsidiaries to the U S holding company during the fourth quarter 2024.
During the fourth quarter at the re paid a dividend of 87 and a half million dollars staffing group ALM.
Dave: Also in the quarter Essent group paid cash dividends totaling $29 $4 million to shareholders and we repurchased one 2 million shares for $66 million on India optimization approved by our board in October 23.
Dave: In January 2025, we repurchased nearly 1 million shares for $52 million taken advantage of the volatility in essence share price.
Dave: As we have previously discussed we are patient and value sensitive when it comes to buying back shares.
Dave: This strategy will support our long term goal of compounding book value per share growth over time.
Mark: Now, let me turn the call back over to Mark.
Mark: Thanks, Dave and closing we are pleased with our full year 2024 financial results, which continue to reflect the strength of our franchise our high quality portfolio combined with resilience and housing and employment continues to translate the strong credit performance, while our business continues to benefit from the impact of rates on persistency and investment income.
Mark: Our strong operating performance continues to generate excess capital, which we will approach in a balanced manner by maintaining balance sheet strength preserving optionality for strategic growth opportunities and optimizing shareholder returns over the longer term looking forward, we remain committed to our buy manage and distribute operating model and believe that essent remains well.
Mark: And to deliver attractive returns for our shareholders now lets get to your questions.
Speaker Change: Thanks Mark.
Speaker Change: And at this time I would like to remind everyone in order to ask a question Press Star then the number one on your telephone keypad. Once again star one and we will pause just a moment to compile the Q&A roster.
Speaker Change: Okay. It looks like our first question comes from the line of Bose George with <unk>. Please go ahead.
Speaker Change: Hey, everyone. Good morning. Thank you first on title is your expectation for 2025 titled results will be similar to <unk> 24, and was there anything unusual entitled This quarter just the provision was up in the Opex was up.
Speaker Change: Hey, good.
Speaker Change: Good morning, Yeah, I would say with title.
Speaker Change: For 'twenty.
Speaker Change: I would expect more of the same I think we have a cost structure and we had said earlier right. It would take 12 to 18 months to stand it up we're right at 18 months, it's relatively well stood up.
Speaker Change: It's just a matter of I kind of look at some of that partial the cost. The drag is kind of an option costs for refinance to come back and I think the ratios haven't come back as like I said in the script, we're levered to rates, but we did sign up.
Speaker Change: Pretty large lender last year, so we're really carrying capacity.
Speaker Change: So that lender and Theres a cost to that so I would expect it to be kind of more of the same.
Speaker Change: And then longer term.
Speaker Change: It's a call option and we do believe longer term it'll be supplemental.
Speaker Change: Our earnings relative to Essent re and I think we're still in what we continue to make progress there, but again I think when rates come down we should see we should see better results in the fourth quarter Bose It was more around the provision.
Speaker Change: Excess provision that we have normally had and that was really just some of the cleanup.
Speaker Change: From the underwriter that we bought and as some of the claims came due so a little bit of a fourth quarter cleanup there.
Speaker Change: Okay, great. Thanks, and then actually the hurricane related default count that you gave the 2219.
Speaker Change: Was that the default sets in the inventory and inventory at quarter end or hit some of those cured by quarter end.
Speaker Change: And they were in there at quarter end. So like we said in the script I think most of most of the increase of the false or or the hurricane. So if you take out.
Speaker Change: Two in a quarter or $2 27 to fall, where you take out the default portfolio.
Speaker Change: <unk> to 2%.
Speaker Change: Okay, great. Thanks.
Speaker Change: Sure.
Speaker Change: Alright, Thank you Bose.
Speaker Change: And our next question comes from the line of Terry MA with Barclays. Terry. Please go ahead.
Terry MA: Hey, Thank you good morning, everyone.
Terry MA: Maybe just to follow up on the default, so I kind of strip that the.
Terry MA: 2000, or so added new notices in the quarter.
Terry MA: New notices are actually down sequentially, which is kind of counter to typical seasonality and any color on kind of what's going on there.
Terry MA: Hey, Terry its stabilized stock yes.
Terry MA: There are some clearly some ebbs and flows to default patterns youre right that in general we do see an uptick.
In the second half of the year for sure and somewhat a little bit in the fourth quarter.
Terry MA: No there wasn't anything that we read into a necessarily I would say on the whole as we looked at 2024.
Terry MA: In general 2024, as default pattern was a little bit favorable mostly every quarter to prior historical quarter. So I think what we really saw in the fourth quarter was maybe a little bit more of the same.
Speaker Change: Got it got it Okay, and then if I look at the default rate kind of ex hurricanes.
Speaker Change: I know the 2% you just quoted the year over year change kind of decelerated compared to last quarter. I'm. Just curious have you kind of reached a point.
Speaker Change: With kind of vintage seasoning, where you should get start to get more of a steady pace of increase for the default rate or is that kind of too early to call right now.
Speaker Change: Yes, I think it's too early to call and I think just big picture Terry.
Speaker Change: I think given the seasoning of the book and just the average age of the book you're looking at historically pre Covid was 18 months. The book kind of continue to turnover because of kind of post COVID-19. This kind of a second cycle cohort was the first cycle rate low rates tons of origination and a lot of refinancing portfolio turn.
Speaker Change: Turning over.
Speaker Change: In the middle of 'twenty, two when rates shot up we've kind of been frozen.
Speaker Change: And the book is really length of Allianz like 33 months as of $32 33 months, so youre starting to really.
Speaker Change: We're getting that extra year.
Of premiums, which we've enjoyed over the over the past couple of years.
Speaker Change: But I think so.
Speaker Change: Just think about it.
Speaker Change: The more the borrowers are outstanding for longer periods of time, it's kind of natural that a few of them that stick around longer will default. So we're pretty it's pretty much in our expectations.
Speaker Change: It wouldn't surprise me if the default rate kind of continues to go up somewhat during 'twenty five and I think you are starting to I don't I wouldnt be surprised if the whole industry Susan maybe were.
Speaker Change: We are different but I think when we see it kind of it to go up to the two ish or 3% ratings wouldn't surprise me at all.
Speaker Change: Got it okay helpful. Thank you.
Speaker Change: Yeah. Thank you Terry.
And our next question comes from the line of Rick Shane with J P. Morgan Rick. Please go ahead.
Rick Shane: Thanks for taking my questions. This morning look theres been some.
Speaker Change: Bunch of questions about Hurricanes I suspect, we're probably going to get.
Rick Shane: Questions next quarter about hires.
Mark: And obviously there are short term implications on the model, but I am curious mark.
Rick Shane: <unk>.
Rick Shane: Many of the high cost regions of the country insurance is now becoming very expensive or not necessarily even available.
Speaker Change: Two things first of all how do you guys monitor whether or not borrowers are in fact insured.
Speaker Change: And if insurance really becomes increasingly problematic how do you think about that in terms of pricing for risk and.
Speaker Change: Considering affordability.
Speaker Change: Yeah.
Speaker Change: It's a really good question and so it's been a topic.
Recently, it's Karl while internally one.
Speaker Change: I think if they are if they have a mortgage they are required to have homeowners. So if somehow they are dropped they'll get forced placed.
Speaker Change: So we don't so we don't worry about them, having the insurance should something happen. So I think we're pretty well covered there and remember and you know this rig and I'm sure a lot of others do we're not really on the hook.
Speaker Change: Until the home is repaired so there's that kind of layer of protection, we have and that's why we've seen historically a lot of the defaults in the hurricane regions tend to cure at a pretty high rate.
Speaker Change: Past past performance doesn't predict the future, but that's been pretty much the scenario we've had.
Rick Shane: Her past hurricanes in terms of the longer term impact of homeowners insurance, yes, I think it's going to continue to be an issue in certain parts of the country. Just remember when some of the real coastal regions or even where the wildfires are these are high cost areas, Rick there's not a lot of mortgage insurance. So we don't really.
Speaker Change: We're not that exposed I think they are the ones that are most susceptible to these significant increases in homeowners, but even even for normal folks youll see it go from like 600, a year to 200, it's significant it's significant from a borrower perspective.
Speaker Change: Like raise above at that kind of big picture from an <unk> perspective.
Speaker Change: May be a point in DTI. So it's like we think about it a lot, but I'm trying to put it in perspective for investors.
Speaker Change: That the assets and added it's an added cost and I think it's strip goes in general Rick to kind of our theme that with affordability.
Speaker Change: Going up and may be staying.
Speaker Change: The amount of disposable income that borrowers are going to have to use.
Speaker Change: Or allocate for mortgages I, just think is going to increase I mean, you live in California, It's always been that way in California for 30 years.
Speaker Change: Borrowers have allocated more of their disposable income to housing hasnt really been that.
Speaker Change: It hasnt been that way for the rest of the country and I. Just think we're homeownership rates will continue to stay where they are kind of in the mid to upper sixties, I think borrowers are going to allocate more of their disposable income I don't think they're going to have a choice if they want to be homeowners. So hopefully that gives you a little bit of big picture context.
Speaker Change: It does and again look I know you think in five and 10 year Horizons.
Speaker Change: Are you concerned that it has a chilling effect on HPA, which does.
Speaker Change: More broadly does impact you guys.
Speaker Change: I do.
Speaker Change: HP has gone up so much Rick.
Speaker Change: In the past five years that I think it's okay for it to pause for a while to be honest I think again for it to be flattish and allow and this kind of gets allow kind of incomes to catch up which is kind of part of my longer term steam for asset and I alluded to it earlier.
Terry MA: Response to Terry, but there's kind of like.
Terry MA: Three cycles right. If you just think about recently, we had the COVID-19 cycle Super low rates lots of origination and it was an anomaly right. We've never really seen rates come down that quickly and stabilize and stay that way.
Terry MA: And that seemed maybe we saw it kind of in 2003 was probably the last time, we saw such a significant refinance and then kind of a great shot up in mid 'twenty. Two so it's kind of like the new book started right. So we have high rates.
Terry MA: Hpa's.
Terry MA: Is pretty high so affordability has been an issue and it's clearly been an issue for the past.
Terry MA: And we're still into it.
Terry MA: I think once and Thats been an anomaly right, we've never seen the housing market and I read last week that.
Terry MA: Typically 4 million borrowers of 4 million people move every year last year was $2 seven so we're still kind of in this this housing.
Terry MA: I guess, it's a run.
Terry MA: As a good way to say it but we're going to come out of it and when we do and I think I think how we come out of it.
Terry MA: As I don't know if rates come down significantly I think have an HPA remain relatively flattish.
Terry MA: And allow time for incomes to increase Youre, just going to see you're going to see it happen naturally right families continue to form they need to move into bigger houses people change jobs more of that natural activity is going to come and I think when we enter in that cycle I think youre going to see renewed growth in our business I really do I can't predict when that.
Terry MA: Is going to happen.
Terry MA: I don't know if it happens in 2025 I think it I think it takes a while for it to play out but again when you think bigger picture for the industry right around a trillion dollars and half of insurance in force. It Wouldnt surprise me and it's really only growing maybe 2% last year, 2% the year before I think we're in a pause and I do think.
Terry MA: When when these forces coming together I think it'll be a bit of a tailwind for the business.
Speaker Change: Got it Hey, Mark I always appreciate the answers. Thank you so much.
Terry MA: Welcome.
Mark: Thanks, Rick.
Mark: And our next question comes from the line of Doug Harter with UBS gives me Doug. Please go ahead.
Speaker Change: Thanks Mark.
Mark: You guys increased the dividend increase the share repurchase.
Mark: And given what you just said that we might be in kind of a pause for.
Mark: Industry insurance in force growth, how are you thinking about the pacing of less capital return in the near term versus opportunities either in mortgage insurance or elsewhere to deploy capital.
Doug Harter: No. It's look it's a good question Doug.
Doug Harter: And I think there is I think we're entering into this year, a decent opportunity for us to return capital and become a little bit more capital efficient and when you.
Doug Harter: Combined the pause in growth the buildup of capital we continue to build capital up over the past few years, so even though rates have been high.
Doug Harter: Credit has been benign persistency has been good and we've had this nice tailwind from investment income and I think I mentioned in the script that $850 million of cash coming in the door. So it's been a strong operating performance and we've really built up capital level, so add that and put into the fact that we feel pretty confident around credit and mature.
Doug Harter: Order term and I know I know, it's your job and we have to think through kind of default rates and where they're going and we do think again I've alluded to it earlier for them to continue to move up to 3% if they get to that level doesn't it doesn't it won't surprise me and we won't get super kind of concerned about it it's kind of well within.
Doug Harter: <unk> expectations and add in kind of our Pmiers cushion right.
Doug Harter: The thing that always that's our biggest concern dug is kind of the events right. We are in.
Doug Harter: I know I know a lot of our analysts our specialty finance analysts, but at the end of the day, we really are more of an insurance company I know our specialty is mortgage but the financial performance in terms of premiums buildup paying claims it's much more of an insurance company.
Doug Harter: We don't have a lot of the liquidity risk.
Doug Harter: Is that a specialty finance company has and our liquidity risk if anything is kind of in the pmiers calculation in terms of the pro cyclicality. Our business is really a cat business in a way are our catastrophe happens to be a macro a severe macroeconomic recession right. That's what we that's the thing that we.
Doug Harter: You think about the most we don't worry about the kind of ins and outs of even of a normal recession or a soft landing, it's really that that big event. They don't happen that often but when they do their significant right. It happened in the Ams business back in the early eighties.
Some regional events and Super high rates, it really crumbled a lot of the <unk> back then it clearly happened during the great financial crisis, we got a peek at a crisis and COVID-19, but it happened to be.
Doug Harter: It happened to be relatively short.
And we run and we've talked about this before we run our test stress test through the GSC stress test. The Moody's asked for is becoming more of a kind of.
Doug Harter: I'd say, commonly looked at amongst those in the industry I think when we go when we run our numbers through that we feel pretty good. So we feel like that's kind of when we think about what's the right P. Myers capital sufficiency ratio a lot of that is run us through the stress and making sure we have it.
Doug Harter: So we feel good there and then when you add in kind of the capital at the Holdco.
Doug Harter: You know you've heard me before think about investment opportunities. We just haven't seen anything that we like in terms of the investments. So when you put all that together.
Doug Harter: It is for us to return capital I think it's a time, it's a good time for us to do it right. We have and we've talked about the numerator and denominator. The numerator again, given that pause in the pauses across the business. It's not just in the core business clearly we alluded to title is more smaller much smaller but its rate sensitive.
Doug Harter: And we're seeing a little bit of a pause even within essent re given that kind of a lack of GSE issuance. So when you add all that up for us too and again, taking advantage really as Dave alluded to we're price sensitive on the repurchases just.
Doug Harter: A fantastic opportunity.
Doug Harter: Post our November call. So we'll continue again to two we have like a grid that will continue to execute.
Doug Harter: Don't forget that we have the special dividend is a tool we haven't used it yet, but again I think that that's always out there and I think we our goal is.
Doug Harter: Is to grow book value per share, but we also want to make sure. We have strong ROE and you don't want the capital too much capital to create a drag I mean I know this is it.
Doug Harter: It's in them.
Doug Harter: It's a high class problem for us to have but I do think youll.
Doug Harter: Youll see a little bit more of that activity in 2025.
Doug Harter: Great I appreciate it mark.
Doug Harter: Okay.
Doug Harter: Thank you Doug.
Speaker Change: And our next question comes from the line of Jeff Dunn with Dowling and partners. Please go ahead.
Jeff Dunn: Thanks, Good morning, guys.
Jeff Dunn: Just in terms of use of the 15, 5% tax rate for this year.
Jeff Dunn: Yes that was.
Jeff Dunn: That's our current estimate for 2025, yes.
Jeff Dunn: Can you I'm surprised at how low it is with the new minimum tax can you walk through the mechanics of that and what kind of credits, maybe you're assuming to get to that level.
Jeff Dunn: Yes, so and actually Jeff, it's actually up a little bit from what our full year was through 2024.
Jeff Dunn: To the extent that youre thinking about.
Jeff Dunn: In Bermuda tax.
Jeff Dunn: And I know theres been a lot of.
Jeff Dunn: <unk>.
Jeff Dunn: There has been some.
Jeff Dunn: Developments there that are that are potentially coming and I know there are those there are definitely some bermuda based companies that have recorded an economic transition adjustment.
Jeff Dunn: And I think that's being looked at and how much of that can be deductible and alike.
Jeff Dunn: To cut through that we don't have one of those we didnt record in economic transition adjustment.
Jeff Dunn: We have a very limited international presence and there is an international presence exemption related to the Bermuda income tax that really exempt from tax until 2030.
Jeff Dunn: So when you look at that that's why on the whole, we're basically saying for 2025, we're going to be around the same place we were really in 2024.
Jeff Dunn: Okay.
Speaker Change: And then do you have to account for the Q3, new notices hurricane effected notices makena.
Jeff Dunn: Yes, Jeff we Didnt actually the Hurricane came really late in September and beginning of October we didn't really think any of those defaults that came in in the third quarter were hurricane related defaults really we really thought everything was really in the fourth quarter.
Speaker Change: And then lastly could you repeat the buyback improved through the quarter I just missed that one.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: Yes.
Speaker Change: In the quarter, we repurchased.
Speaker Change: Got it right here, we repurchased 61 2 million shares for $66 million in the fourth quarter and in January we repurchased nearly 1 million shares for $52 million.
Speaker Change: Perfect. Thank you.
Jeff Dunn: Sure Great. Thanks, Jeff.
Jeff Dunn: Just a reminder, folks again, if you would like to ask a question. It is star one on your telephone keypad once again star one.
Speaker Change: And our next question comes from the line of Eric Hagen with BTG.
Speaker Change: Go ahead.
Eric Hagen: Hey, Thanks, Good morning, I appreciate you guys, taking my question.
So it feels like the nonbank lenders are laser focused on bringing down origination and servicing costs managing their own prepayment risk through.
Eric Hagen: Strong recapturing a lot of that improvement in costs and scale already seem to be showing up in the refi behavior. When when rates are dropping the you guys have any perspective on how further growth of these non banks.
Eric Hagen: Lower cost of capital could drive pre.
Eric Hagen: Prepaid behavior, specifically the high LTV cohort of borrowers out there.
Eric Hagen: Then how that kind of dynamic may be traces back to how you guys price risk.
Eric Hagen: It's.
Eric Hagen: Clearly, it's in kind of our duration assumptions when we think about it.
Speaker Change: When we price risk on the front end I think it's an interesting point, Eric it's nice to have you back on the calls.
Speaker Change: And you're correct in terms of how a fishing.
Speaker Change: The larger originators have become on refinancing and you can imagine maybe even with some of the potential AI tools out there that they could become even more efficient, but they are brutally efficient and they have been for a while.
Speaker Change: The one thing to keep in mind when you.
Speaker Change: They have been for a while.
Speaker Change: And so I think when we think about it I think it's still rate dependent I mean, so if rates do come down would we see would we see more kind of roll off the books, absolutely and again, but I think it will be as I said earlier will be replaced by rates come down.
Speaker Change: Following up on my answer to Rick It probably brings in that new cycle, a little bit quicker because I think it will unlock a lot of purchase activity too so.
Speaker Change: No.
Speaker Change: Exactly answers your question, but I do think kind of it.
Speaker Change: It really is rate dependent so these guys I know the brutally efficient, but you still need rates to kind of come down so and we saw that I think that was that that was the example, I think we might have talked about it before but there was kind of that refinance flash.
In October and we saw you can see even reflected in our numbers I think our refinance percentage with a 14 ish.
Speaker Change: In the fourth quarter. So it was it was relatively higher and we saw we saw a bit on title. We then take advantage of it.
Speaker Change: Because it wasn't long enough, but I agree with you when it comes they they react very quickly.
Speaker Change: Great perspectives I appreciate it guys. Thank you.
Eric Hagen: Thank you Eric.
Speaker Change: And it looks like our final question today comes from the line of Bose George with <unk>. Please go ahead.
Bose George: Great. Thanks, I just had a couple of modeling related questions did you guys give guidance for expenses for 2025.
Speaker Change: No we didnt Bose, because we're moving to the segment reporting which you guys will see in.
Speaker Change: In the K disclosure, so it's going to be more <unk>, and then kind of other other segments. So we didn't.
Speaker Change: We will be able to kind of once you see the numbers, we'll be able to potentially give you. Some MRI type guidance, but big picture. If you were to look at last year's numbers there'll be relatively flattish like when you cut through it but we didn't we didn't we wanted to wait until the K was out and you guys had a good chance to kind of look through it.
Speaker Change: Okay, Great and then actually just one more on the investment portfolio whats the incremental yield versus the current yield.
Speaker Change: Is it just a decline quarter over quarter.
Speaker Change: Surprising so kind of what drove that.
Speaker Change: Yes.
Speaker Change: It's a little surprising, but we really kind of reposition we're repositioning the book. So we moved and we've started that in the past I want to say three or four months. So we're moving out of kind of a shorter term cash back.
Speaker Change: Back into kind of more ABS in corporate credit is kind of back to where we were before kind of moving back to our normal portfolio. So it's a little bit of that rolling off it was it was.
Speaker Change: Two year treasuries at really high rates kind of rolling off so I would think.
Speaker Change: This year, both just in terms of kind of the rate I think it stays in that same neighborhood.
Speaker Change: Longer term.
Speaker Change: Depending if the yield curve stays where it is it wouldn't surprise us to see it go above four but I don't I don't think thats going to happen in 2025.
Speaker Change: Okay, great. Thanks, a lot.
Speaker Change: Sure.
Speaker Change: Thanks Bose.
Speaker Change: And there are no further questions. So I will now hand, it back to management for closing remarks.
Speaker Change: I'd like to thank everyone for joining us and again for the second time in seven years I'd like to congratulate our Philadelphia Eagles for winning the Super Bowl and have a great weekend and then <unk>.
Speaker Change: Please wait the conference will begin shortly.
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Speaker Change: Thanks.
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Speaker Change: Okay.
Speaker Change: Thanks.