Q1 2025 NMI Holdings Inc Earnings Call
Good day and welcome to the N M. I Holdings, Inc. First quarter 2025 earnings Conference call. All participants will be in listen only mode should you need assistance. Please signal a conference specialist by pressing the star key followed by zero. After today's presentation there'll be an opportunity to ask.
Speaker Change: Questions to ask a question you May press Star then one on a touchtone phone to withdraw your question. Please press Star then two please note. This event is being recorded I would now like to turn the conference over to John Swenson of management. Please go ahead.
Speaker Change: Thank you operator, good afternoon, and welcome to the 2025 first quarter conference call for National online.
Speaker Change: I'm, John Swenson, Vice President of Investor Relations and Treasury.
Speaker Change: Joining us on the call today are Brad Shuster Executive Chairman, Adam Palmer, President and Chief Executive Officer, and Aurora Swiss Bank, our Chief Financial Officer.
Speaker Change: Financial results for the quarter were released after the close today.
Speaker Change: The press release may be accessed and minimize website located in Nashville Dot com under the investors tab.
Speaker Change: During the course of this call we may make comments about our expectations for the future.
Speaker Change: Actual results could differ materially from those contained in these forward looking statements.
Speaker Change: 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.
Speaker Change: If and to the extent the company makes forward looking statements. We do not undertake any obligation to update those statements in the future in light of subsequent development.
Speaker Change: Further no one should rely on the fact that the guidance looks such statements is current at any time other than the timing of these.
Speaker Change: Carl.
Speaker Change: Also note that on this call when we refer to certain non-GAAP measures in today's press release and on our website. We've provided a reconciliation of these measures to the most comparable measures under GAAP.
Brad Shuster: Now I'll turn the call over to Brad.
Brad Shuster: Thank you John and good afternoon, everyone.
Brad Shuster: I'm pleased to report that in the first quarter National <unk> again delivered strong operating performance.
Brad Shuster: Growth in our insured portfolio and record financial results.
Brad Shuster: Our lenders and their borrowers continued to turn to us for critical Downpayments support and in the first quarter, we generated $9 2 billion of <unk> volume.
Brad Shuster: Ending the quarter with a record 211 3 billion of high quality high performing primary insurance in force.
Brad Shuster: In Washington, our conversations remain active and constructive.
Brad Shuster: We'd like to congratulate Bill Pulte on his confirmation as director of the FHFA.
Brad Shuster: Under director Paul teaches leadership, the FHFA and Gse's have brought a renewed focus to the housing market and housing finance issues.
Brad Shuster: With an overarching goal to help more Americans than ever before unlocks the dream of homeownership.
Brad Shuster: Yeah.
Brad Shuster: We have long noted that there is broad recognition of the unique and valuable role that the private mortgage insurance industry plays.
Brad Shuster: Working to consistently expand access to homeownership and all the benefits it provides.
Brad Shuster: While also placing private capital in front of the Gse's and taxpayers to ensure the safety and soundness of the conventional mortgage market.
Brad Shuster: National Am I in the broader private mortgage insurance industry.
Brad Shuster: Never been stronger or better positioned to provide this critical support than we are today.
Brad Shuster: And we're excited to work with director Pulte.
Brad Shuster: Other members of the administration to advance their important housing goals.
Adam Palmer: With that let me turn it over to Adam.
Adam Palmer: Thank you Brad and good afternoon, everyone.
Adam Palmer: National and I continue to outperform in the first quarter delivering significant new business production consistent growth in our insured portfolio and record financial results.
Adam Palmer: We generated $9 2 billion and then IW volume and ended the period with a record 211 3 billion in high quality high performing primary insurance in force.
Adam Palmer: Total revenue in the first quarter was a record $173 2 million and we delivered record GAAP net income of $102 6 million or $1.28 per diluted share and an 18, 1% return on equity.
Adam Palmer: Overall, we had a terrific quarter.
Adam Palmer: And stand today in a position of real strength.
Adam Palmer: We're in the market every day with a clear mandate and purpose offering a low cost high value solution that makes homeownership more affordable and achievable for millions of deserving Americans in communities across the country with coverage that serves to insulate the GSE and taxpayers from risk and loss in a DAU.
Adam Palmer: Churn.
Adam Palmer: We have a strong customer franchise.
Adam Palmer: <unk> team driving us forward everyday and exceptionally high quality book covered by a comprehensive set of risk transfer solutions.
Our robust balance sheet supported by the significant earnings power of our platform.
Adam Palmer: Stepping back this is an interesting time, one where the strength of our current performance and near term outlook stand in contrast to prevailing economic themes.
Adam Palmer: And while we don't know how the macro environment will develop we're confident that the disciplined approach we've taken to managing our business will carry our performance through all market cycles.
Adam Palmer: From the start we have focused on building national am I in a durable risk responsible manner. We've worked hard to establish a comprehensive credit risk management framework and have always maintained a proactive stance with respect to our pricing risk selection and reinsurance decisioning. It's an approach that has served us well and continue.
Adam Palmer: Used to be the prudent and appropriate course.
Adam Palmer: Overall, we had a terrific quarter delivering strong operating performance continued growth in our insured portfolio and record financial results more broadly we remain encouraged by the continued discipline that we see across the private M&A market.
Adam Palmer: Looking ahead, we're well positioned to continue to serve our customers and their borrowers invest in our employees and their success.
Adam Palmer: <unk> growth in our high quality insured portfolio and deliver through the cycle growth returns and value for our shareholders.
Aurora: Before turning it over to Aurora I'm pleased to also share that we've extended our long term engagement with Tata consultancy services on favorable terms into 2032.
Aurora: Tcs has been a valued partner of ours since 2020 and has been a key resource as we've continued to drive innovation and efficiency across our platform and we're excited to have successfully extended our partnership with that I'll turn it over to Aurora.
Speaker Change: Thank you Adam we again delivered record financial results in the first quarter total revenue was a record $173 2 million net income was a record $102 6 million or $1.28 per diluted share and return on equity was 18, 1%.
Aurora: We generated $9 2 billion that I W and our primary insurance in force grew to 211 3 billion up 1% from the end of the fourth quarter and 6% compared to the first quarter of 2024.
Aurora: 12 month Persistency was 84, 3% in the first quarter compared to 84, 6% in the fourth quarter.
Aurora: Net premiums earned in the first quarter were a record $149 4 million compared to $143 5 million in the fourth quarter and $136 7 million in the first quarter of 2024.
Aurora: Net yield for the quarter was $28 four basis points up from 27 five basis points in the fourth quarter.
Aurora: Core yields which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings was unchanged at $34 one basis point.
Aurora: And that's been income was $23 7 million in the first quarter compared to $22 7 million in the fourth quarter and $19 4 million in the first quarter of 2024.
Aurora: Total revenue was a record $173 2 million in the first quarter up 4% compared to the fourth quarter and 10, 9% compared to the first quarter of 2024.
Aurora: Underwriting and operating expenses were $30 2 million in the first quarter compared to $31 1 million in the fourth quarter. Our expense ratio was 22% in the quarter compared to 21, 7% in the fourth quarter.
Aurora: We had 6859 defaults at March 31, including 625 notices of loans and FEMA declared disaster areas.
Aurora: And our default rate at quarter end was unchanged at 1%.
Aurora: Claims expense in the first quarter was $4 5 million compared to $17 3 million in the fourth quarter.
Aurora: Credit performance in the first quarter benefited from normal season don't cure activity to start the year balanced partially by the natural growth and seasoning of our portfolio.
Aurora: GAAP net income was a record $102 6 million up 19% compared to $86 2 million in the fourth quarter and 15% compared to 89 million in the first quarter of 2024.
Aurora: Diluted EPS was $1 28 up 20% compared to $1 seven tons in the fourth quarter and 18% compared to $1.08 in the first quarter of 2024.
Aurora: Total cash and investments were $2 9 billion at quarter end, including 76 million of cash and investments at the holding company.
Aurora: Shareholders' equity as of March 31 was $2 3 billion and book value per share was $29.65.
Aurora: Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio was $30.85 up 4% compared to the fourth quarter and 17% compared to the first quarter of last year.
Aurora: In the first quarter, we repurchased $25 9 million of common stock retiring 718000 shares at an average price of $36 and 12 three.
Aurora: Through quarter end, we repurchased a total of $271 million of common stock retiring 10 million shares at an average price of $27.03.
Aurora: We have $304 million of repurchase capacity remaining under our existing program.
Aurora: At quarter end, we reported $3 2 billion of total available assets under Pmiers and $1 9 billion of risk base as available at a risk based required assets.
Aurora: Available assets for $1 4 billion.
Aurora: Overall, we achieved standout financial results during the quarter with consistent growth in our high quality insured portfolio and record top line performance favorable credit experience and continued expense efficiency driving record bottom line profitability and strong returns and with that let me turn it back to Adam.
Adam Palmer: Thank you Laura.
Adam Palmer: We had a terrific quarter once again delivering significant new business production consistent growth in our high quality insured portfolio and record financial results.
Adam Palmer: A strong customer franchise, a 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.
Adam Palmer: Taken together, we are well positioned to continue to serve our customers and their borrowers.
Adam Palmer: Invest in our employees and their success.
Speaker Change: High growth in our high quality insured portfolio and deliver through the cycle growth returns and value for our shareholders. Thank you for joining us today I'll now ask the operator to come back on so we can take your questions.
Speaker Change: We will now begin the question and answer session to ask a question you May Press Star then one on your Touchtone phone. If you are using a speakerphone. Please pick up your handset before pressing the keys if at any time. Your question has been addressed and you would like to withdraw your question. Please press Star and then two.
Speaker Change: Our first question comes from Mihir Bhatia with Bank of America. Please go ahead.
Mihir Bhatia: Hi, Thank you for taking my questions and good afternoon.
Mihir Bhatia: I wanted to start with just on the credit side, maybe just talk a little bit about vintage performance. So you seem pretty stable performance from like the newer vintages are you seeing a little bit more normalization. If you will after some exceptionally strong performance yes.
Mihir Bhatia: Yes, I hear you say, it's a good question I would say broadly speaking.
Mihir Bhatia: The starting point is.
Mihir Bhatia: We apply the same rigor around.
Mihir Bhatia: Underwriting risk selection and managing our mix pricing with disciplined pricing with a focus on through the cycle performance for our more recent vintages as we have done at all points in the past you could see it and we've talked about it in the past an hour in the earnings release earnings release, there's a table that breaks out performance by vintage and you can.
Mihir Bhatia: See that the incurred loss ratios for some of our more recent vintages really the post pandemic vintages are higher than the pandemic pre pandemic vintages.
Mihir Bhatia: The underlying profile of the borrowers the mix for all of those is nearly identical the difference, though that's coming through is simply the level of acquisition that supports the borrowers in our 2021 booking earlier versus our 2022 book and more recently and so we do one of the items that Aurora.
Speaker Change: <unk> talked about in her prepared remarks.
Mihir Bhatia: It grew.
Mihir Bhatia: Growth and seasoning of our portfolio. This idea of normalization as the underlying experience of the borrowers normalizes, we do expect that that trend will continue as we go forward.
Mihir Bhatia: But we're pleased with the performance that we've seen on those more recent vintages nothing stands out as a concern. The only notable difference is just the level of equity because of the difference is in.
Mihir Bhatia: House price appreciation, if you look from a starting point 2022 and forward versus say, a starting point 2020 and forward.
Mihir Bhatia: Alright.
Mihir Bhatia: Sorry, if I missed this in the prepared but how much equity is very new default like I think you'll sometimes give us that.
Mihir Bhatia: Yeah, the average mark to market equity on our defaulted population or the average LTV.
Mihir Bhatia: LTV is 73, 2%.
Speaker Change: Thank you and then just switching just very quickly on the Tcs renewal.
Speaker Change: Any impact to your Opex outlook for this year or any additional comments on that.
Speaker Change: Yeah, I'd say look broadly speaking as an operating matter right as a business matter. We're really delighted to have extended the partnership. We've now worked with Tcs for over five years, they've got deep expertise across the mortgage finance value chain.
Speaker Change: They know us they know our systems and really we've been able to lean on them to drive continued innovation and efficiencies. So as a business matter. It's a it's a huge positive I mentioned favorable terms in my prepared remarks, and so going forward our cost won't really change from where they are today, we expect that our expenses under the extended agreement will be roughly the same.
Speaker Change: Going forward as they have been on a I'll call. It a run rate basis for the expense load that we carried in Q1, maybe a little bit of movement here or there, but by and large nothing of note.
Speaker Change: Got it thank you I'll get back in queue.
George Bose: And the next question comes from Bose, George with K B W. Please go ahead.
George Bose: Hey, everyone. Good afternoon.
George Bose: Just first given the uncertainty around tariffs et cetera have you guys changed anything in terms of pricing or credit loss expectations or just how are you sort of incorporating that into your credit process. Yes.
Speaker Change: I'll give you a perspective, one as I said, it's an interesting time, where there is nothing today in either our internal spot data or the I'd say the hard data around that.
Speaker Change: That points to a challenge, but obviously the headlines the emerging market volatility broader concerns around what tariffs and other policies might mean from an economic standpoint, they certainly factor into our thinking I think the big item to note, though and so we will always be changes right.
Speaker Change: We will make changes in our pricing engine with frequency for a variety of reasons to shape, our portfolio to give consideration to emerging macro risks, but we're doing that from a point of where we're already embedding conservatism because we have to when we're pricing our policies today with an expectation or at all times with an expectation that they'll stay on our books for <unk>.
Speaker Change: Several years and during that several year timeframe, we have to contemplate that there is the potential and ascribe a probability to a downturn other than what we might just be seeing in the current year and now.
Speaker Change: Blue Sky environment, let's say, so already our pricing or the management of our mix the decisions, we make around our balance sheet, our reinsurance purchasing all of those items already contemplate the possibility that stress will develop when headlines emerge and concerns emerge that those that stress might then maybe a bit more.
Speaker Change: Acute than in past points, we do factor for that but it's not a wholesale change right by embedding that discipline and conservatism. We can make sure that were always showing up for our customers and their borrowers with consistency and so there's things that we do in an environment like today, where we might.
Speaker Change: The refine our thinking but it's not a wholesale shift in how we engage in the market what our posture is.
Speaker Change: Okay, Great. That's helpful. Thanks, and then actually what was your provision for new notices in <unk> versus <unk>, just given the intra quarter recoveries. It just makes it hard to do the math over the prior quarter.
Speaker Change: Yeah. It is 13500 is the reserves that we put up on new notices and Youre right. It is sometimes difficult to parse from the table. Just there were a number of hurricane related <unk> in the quarter and as you know we discount our we reserves at a different level given the different behavior, we see in India.
Speaker Change: <unk> disaster related I know geez.
Speaker Change: Okay, and what was the number last quarter.
Speaker Change: It was roughly equivalent to 13500, excluding the hurricane related I know, Dave to take that noise out of the equation.
Speaker Change: But just in the aggregate so in the aggregate, we posted a little under $26 million of reserves against the new notices that emerged in.
Speaker Change: In the first quarter some of the noise that are always talking about so there is a storm related entities that create some distortions also you may remember we got some notes in our.
Speaker Change: Our release that the IV in our dynamic the incurred but not reported can introduce a little bit of noise in the quarter, but when you normalize for those items in the aggregate, it's about $26 million, but on an average reserve per new notice, it's pretty consistent with where we were in Q4.
Speaker Change: Okay, great. Thanks.
Rick Shane: And the next question comes from Rick Shane with J P. Morgan. Please go ahead.
Rick Shane: Good afternoon, everybody Oh excuse me.
Rick Shane: Two questions and I apologize if I missed this did you provide the.
Rick Shane: The buyback during the quarter.
Rick Shane: We did it was 25 9 million or 718000 shares.
Rick Shane: Excellent. Thank you.
Rick Shane: Second question.
Rick Shane: We're in this.
Rick Shane: Odd period, where there.
Rick Shane: The portfolio was so bifurcated in terms of the characteristics, it's not the normal distribution.
Rick Shane: And one of the characteristics of.
Rick Shane: This season vintages has a tremendous amount of HPA.
Speaker Change: Is there any concern at this point despite the fact that rates are so high and.
Speaker Change: And refi activity is muted that there could be some sort of adverse selection will lead into.
Speaker Change: Extinguishment of PMI on some of those.
Speaker Change: You know really strong.
Speaker Change: Strong vintages, yes.
Speaker Change: Yes, Rick maybe let me answer could also let me.
Speaker Change: Just share one comment around the question you posed to you said there is a real bifurcation across the portfolio.
Speaker Change: And I would want to reiterate there is consistency across all vintages in terms of what the underlying borrower loan risk characteristics are the broad geographic diversification that we have the broad customer diversification all of that holds across all vintages. So when we think about the quality of our portfolio those core sort of foundational <unk>.
Speaker Change: Drivers of credit performance borrow risk attributes loan risk attributes property risk attributes geographic diversification all of those hold.
Speaker Change: Only notable difference is differences in the level of acquisition from the time of origination to where we sit today and that's real that will have an impact on loan performance and our claim experience across the different vintages, but the entire portfolio with high quality. It was underwritten with consistency and with a similar focus across.
Speaker Change: All times to the question as to whether or not there is adverse selection.
Speaker Change: That might come through.
Speaker Change: We're we're not seeing that.
Speaker Change: I think it's the right environment more than anything that drives the refinancing opportunity.
Speaker Change: And perhaps on the margin right. There is this sort of natural dynamic that happens with automatic cancellations right that happened at a 78% scheduled not appreciated LTV. So if you think that you are lower risk policies or say Youre 80, fives, and you're 90 days, because you're starting with more equity even before any house price depreciation those are loans.
Speaker Change: That naturally hit a point of automatic cancellation before higher LTV loans, because they are obviously closer to <unk> 78, so as maybe like a little bit but there is nothing from a borrower behavior or strategy standpoint that we're seeing come through it's really all driven by the prevailing rate environment compared to their underlying note rate and the opportunity for savings.
Speaker Change: <unk>.
Speaker Change: Got it no and look it's a fair point in terms of the going in.
Speaker Change: <unk> are the entry borrower quality, but I also think it's fair to say that.
Speaker Change: Borrower with a 4% loan and 35% HPA.
Speaker Change: The credit profile over the next couple of years is probably different than that.
Speaker Change: Similar borrower going in who's got a six 5% coupon and.
Speaker Change: 5% or 10% HPA.
Speaker Change: Yes, absolutely.
Speaker Change: At the same day rate I would say that that is not different.
Speaker Change: Credit profile its different loan experiencing performance, but yes, absolutely those items do matter okay.
Speaker Change: Okay.
Speaker Change: Thank you guys very much.
Speaker Change: Again, if you have a question. Please press star and then one.
Speaker Change: Yes.
Speaker Change: Okay.
Speaker Change: This concludes our question and answer session I would like to turn the conference back over to management for any closing remarks.
Speaker Change: Well. Thank you all again for joining us will be participating in the K BW virtual real estate Finance conference on May 20th and the Truest Financial Services Conference in New York on May 21, we look forward to speaking with you again soon.
Speaker Change: The conference has now concluded. Thank you for attending today's presentation you may now disconnect.