Q2 2025 NMI Holdings Inc Earnings Call

Good day and welcome to the nmi Holdings. Second quarter 20125 earnings conference call.

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I would now like to turn the conference over to John Swenson of Management. Please go ahead.

Thank you, good afternoon and welcome to the 2025 second quarter conference call for National me.

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 and Aurora, Swift and Bank our Chief Financial Officer

Financial results for the quarter were released. After the close today, the press release may be accessed on atomized website, located at National mi.com, under the investors table,

During the course of this call. We may make comments about our expectations for the future.

Actual results to 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.

To the extent that 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 1 should rely on the fact that the guidance of such statements is current at any time other than the time of this call.

also note that on this call, we may refer to certain non-gaap measures

in today's press release and on our website, we provided a Reconciliation of these measures to the most comparable measures under gaap.

Now, turn the call over to Brad.

Thank you, John, and good afternoon everyone.

I'm pleased to report that in the second quarter National me. Again. Delivered standout operating performance continued growth in our insured portfolio and strong financial results.

Our lenders and their borrowers. Continue to turn to us for critical down payment support. And in the second quarter we generated 12.5 billion of niw volume.

Ending the period with a record 214.7 billion of high-quality high-performing primary Insurance enforce.

In Washington, our conversations remain active and constructive.

And there continues to be broad recognition in D.C. about the value that the private mortgage insurance industry provides.

Offering borrowers efficient down payment, support and access to mortgage credit.

There to absorb risk and loss in a downturn.

Before turning it over to Adam and getting into the details of the quarter.

I also want to share how proud I am that in June National. Me was again recognized as a great place to work.

And earned an added decade of great distinction for garnering the honor for the 10th consecutive year.

Great place to work is a global Authority on workplace culture, employee experience, and Leadership.

and partners with Fortune magazine to produce the annual Fortune 100 Best Companies to Work For list.

We firmly believe that the quality of our team and the culture that we have established are key competitive advantages, and it is gratifying to again be recognized for these strengths.

With that, let me turn it over to Adam.

Thank you, Brad, and good afternoon, everyone.

National Mortgage Insurance continued to outperform in the second quarter.

Delivering, significant new business production, consistent growth in our insured portfolio and strong financial results.

We generated $12.5 billion of new insurance written (NIW) volume and enter the period with a record $214.7 billion of high-quality, high-performing primary insurance in force.

Total revenue in the second quarter was a record 173.8 million.

And we delivered adjusted net income of 96.5 million or 1.22 cents per diluted share and a 16.3% adjusted return on equity.

Overall, we had a terrific quarter and our confidence as we

The macro.

Resilient in the face of elevated. Interest rates and increased headline volatility.

Our lender customers and their borrowers. Continue to rely on us in size for critical down payment support, and we see an attractive and sustained new business opportunity fueled by long-term secular trends.

We have an exceptionally high-quality insured, portfolio, covered by a comprehensive set of risk transfer Solutions.

And our credit performance continues to stand ahead.

Our persistency remains well above historical trends. And when paired with our strong NIW, production has helped to drive consistent growth and embedded value gains in our insured book.

And we continue to manage our expenses and capital position with discipline and efficiency building a robust balance sheet that supported by the significant earnings power of our platform.

Notwithstanding these strong positives. However, macro risks, do remain, and we've maintained a proactive stance with respect to our pricing.

Risk selection and reinsurance decisioning.

It's an approach that has served us well and continues to be The Prudent and appropriate course.

More broadly, we remain encouraged by the continued discipline that we see across the private mortgage insurance market, and we applaud the permanent renewal of the mortgage insurance premium tax deduction. In the big, beautiful bill, which is expected to deliver meaningful tax relief to deserving middle-class homeowners.

Overall we had a terrific quarter delivering strong operating performance continued growth in our insured portfolio and strong financial results.

We're in the market every day with a clear mandate and purpose offering a low-cost high-value solution, that makes home ownership more affordable, and achievable for millions of Americans, and communities across the country. With coverage, that works to insulate the gsc's and taxpayers from risk and loss in a downturn.

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 short portfolio, and deliver through-the-cycle growth returns and value for our shareholders with that. I'll turn it over to Aurora.

Thank you, Adam. We again delivered Stand Out Financial results. In the second quarter, total revenue was a record 173.8 million adjusted in. Net. Income was 96.5 million or 1.22 cents per diluted share.

An adjusted return on equity was 16.3%.

We generated $12.5 billion of NIW, and our primary insurance in force grew to $214.7 billion, up 2% from the end of the first quarter and 5% compared to the second quarter of 2024.

3%, in the first quarter.

Net premiums earned in the second quarter were $149.1 million, compared to $149.4 million in the first quarter and $141.2 million in the second quarter of 2024.

Net yield for the quarter was 28, basis points, core yield, which excludes the cost of our reinsurance coverage in the contribution from cancellation. Earnings, was 34.2 basis points up from 34.1 basis points in the first quarter.

Investment income was 24.9 million in the second quarter compared to 23.74% 20.7 million in the second quarter of 2024.

Total revenue was a record 173.8 million in the second quarter compared to 173.2 million in the first quarter and 162.1 million in the second quarter of 2024.

Under writing and operating expenses, were 29.5 million in the second quarter compared to 30.2 million in the first quarter.

Our expense ratio was a record low 19.8% in the quarter highlighting the significant operating leverage embedded in our business. And the success we have achieved at efficiently managing our cost base.

We have a uniquely high-quality insured portfolio, and our credit performance continues to stand ahead. We had 6,709 defaults at June 30th, compared to 6,859 at March 31st, and our default rate declined to 1% at quarter end.

Claims expense in the second quarter was 13.4 million.

GAAP net income for the quarter was $96.2 million, and diluted earnings per share was $1.21. Adjusted net income was $96.5 million, and adjusted diluted EPS was $1.222.

Total cash and investments were $3 billion at quarter-end, including $169 million of cash and investments with the holding company.

Shareholders Equity at June 30th was 2.4 billion. And book value per share was $31.14.

Book value per share, excluding the impact of net unrealized gains and losses. In the Investment Portfolio was 32.8 cents up 4% compared to the first quarter and 16% compared to the second quarter of last year.

In the second quarter, we were purchased 23.2 million of common stock retiring 628,000 shares at an average price of 36.90.

The recorder end. We were purchased a total of 294 million of common stock retiring 10.6 million shares, and an average price of $7.61.

We have 281 million of repurchase capacity remaining under our existing program.

At quarter end, we reported $3.2 billion of total available assets under premiums and $1.9 billion of risk-based required assets. Excess available assets were $1.3 billion.

Overall, we achieved standout Financial results during the quarter delivering consistent growth in our high quality,

Insured portfolio record, Topline performance, and expense, efficiency and strong, bottom line profitability in return.

With that, let me turn it back to Adam.

Thank you Aurora. We had a terrific quarter. Once again, delivering significant, new business Productions, consistent growth in our high-quality and

Standout Financial results.

We have a strong customer franchise, a talented team, driving us forward every day, 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 to serve our customers and their borrowers, invest in our employees, and their success.

Drive growth in our high-quality and short portfolio and deliver through the cycle growth returns and value for our shareholders.

Before closing, I also want to Echo Brad's comments about our great place to work and decade of great recognition.

National me leaves, the mortgage insurance Market with discipline and distinction. And we are fortunate to have such a talented and dedicated team. Working hard every day to deliver innovative solutions for our customers and their Borrowers.

We have a reputation for standing and success as a company, thanks to our team, and I'm delighted to take a moment to celebrate their efforts.

Thank you for joining us today. I'll now ask the operator to come back on so we can take your questions.

We will now begin the question and answer session to ask a question. You may press star then 1 on your touchtone phone,

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If at any time your question has been addressed and you would like to withdraw your question, please press star then 2.

The first question comes from, Doug harder from UBS. Please go ahead.

Thanks. Um, hoping you could, uh, talk a little bit about the, the pacing of capital return. And, you know, given the sort of resiliency, of, of the economy and the Persistence of high rates, whether that would change the facing of capital return,

Yeah, Doug it's a good question. I tell you broadly speaking, we're pleased with the execution that we've achieved on our program thus far, including the 23 million that we retired in in Q2 as we look ahead. Um, while we don't have a set schedule for our anticipated activity. We've been fairly consistent thus, far, buying back, roughly 25 million a quarter and that's really a good assumption for, uh, for where we'll be seeing. We've got, it is an open market program and so you can see, you know, some natural fluctuations, uh, up or down depending on the risk environment. How we're operating performance is trending and and also where our valuation Trends because it's somewhat sensitive to to Value. Um, and we certainly have ample capacity to be more opportunistic if, if the opportunity should arise and by the same, uh, token, I say the discipline to slow things if circumstances dictate, but right now, um, it'd be, you know, a good Assumption of sort of that rough 25 million per quarter that we've been operating against

Thank you.

The next question comes from Rick. Shane from JB Morgan, please go ahead.

Hey everybody, thank you for taking my questions. Um look.

Um, you know, we're starting to see, over the last couple of months here, more about rising supply of homes for sale, longer days on market, and some indications of home price depreciation in certain markets. Um, if you can talk about how you're thinking about this tactically in terms of underwriting, um, but also in terms of risk transfer. When we look at year-to-date, you've done a QSR, you've done XOL. Um, it looks like the strategy remains sort of balanced to accessing different markets. But I'm curious if you're seeing anything in terms of pricing in those markets that either gives you pause or will lead you in one direction or the other.

Yeah. Um, why don't both of row and I will take it, I'll give you a perspective on. I'd say what we're seeing broadly in the market, how we're continuing to manage around, uh, what we observe in the market and then we touch on, uh, you know, reinsurance where we've

Um, we are fully placed on a forward basis for for several years from here. I can take, maybe I'll just comment broadly on on the market and what we're observing because you're you're right, the headlines are out there. See there are there are real reasons to be encouraged um about the backdrop in which we're operating against, right? The economy continues to grow the job market remains healthy. And some of those long-term secular drivers of demand, um, remain fully intact. And so, um, it's not surprising that we're continuing to see I'd say, broad-based resilient in the market, resiliency, in the market nationally. Um, however, as we've noted really for a while now, we do see differences emerging in different geographies, right? Parts of Florida, Texas, the Sun Belt Mountain West,

Absolutely remain under pressure, but this is really nothing new. These are the areas that saw some of the most significant price increases during the pandemic rally, and they're now facing a more pronounced supply-demand reset. Overall, what that means though is that the housing market itself is moving more towards a point of equilibrium. And so what we expect is that the pace of appreciation.

Continue to use the tools that we've developed to do that. So we don't have any concerns, and we don't expect any significant changes, right? We want to be balanced. We want to obviously take all the steps that we need to to protect our balance sheet, protect our ability to deliver strong results for shareholders, but also make sure that we're showing up constructively in all markets at all times for our lenders and their borrowers. And we're in a terrific, terrific position today as to what it means for our risk transfer program. I'll turn it over to Aurora. Yeah, I'm happy to take that one. So, as articulated, we've already secured, last fall, both quota share and excess of loss coverage for all of our 2025 production and all of our 2026 production, and a partial placement of our 2027 production year.

So, uh, we're not looking to do anything specific or extras as a result of the, the current macro environment or housing housing market, but at the same time we'll we'll our typical Cadence is that we'll meet with our reinsurance partners in the back part of the year um and and place, our forward flow deals. And so I think you'll see us doing that over the next couple of quarters.

Um, and and I'd also say that alongside our sort of normal forward flow transactions. We always think about ways that we can optimize our coverage in terms of lowering costs, um, getting additional coverage. So you you may see us um tweak certain contracts or or exercise certain call rights with respect to trans.

Transactions, that are outstanding.

Um but we don't really see any pressing need to do something different today.

Got it. Uh, it's very helpful and I appreciate the sort of reminder on the Cadence of the way the programs work. It's helpful. Thank you guys.

The next question comes from Mark Hughes from Truist. Please go ahead.

Yeah, thanks. Good afternoon.

Good afternoon. Uh, Ed, do you have any update on the competitive environment, how pricing is relative to your peers? Any new... uh,

Developments there.

Yeah, um, I'd say broadly speaking, the industry, um, industry pricing is as we observe it is balanced and constructive and you say we continue to be encouraged by the unit economics that we're achieving on on new business today at nmi, where we're, uh, we should be we're at a point again, I I mentioned this in my response to to Rick, but we're we're fully and fairly supporting our customers, and their borrowers. And at the same time, we're using rate among other tools to, you know, protect our balance sheet, manage our risk and, and make sure that we're able to deliver returns for shareholders. So to a constructive environment as we look out,

Yeah, on the, uh, Opex side, were there any kind of one-timers that helped out, or is that, uh, just a function of leverage?

Yeah, what what I'd say on the expense side is that we typically do see a decline from q1 to Q2 in terms of absolute dollars. And that's the the typical annual reset of the FICA and the 401K bonus matching that occurs in the first quarter. So we do typically see a more heavy expense load in q1 versus Q2. There were some other ins and outs but there was no 1 off store or or anything particular that I'd point to yeah. Really just a a strong quarter of, you know, discipline and efficiency. Um that we always try to maintain.

And then on investment income, likewise any kind of non-recurring items, or is that just a...

Growth in the portfolio.

Yeah, you could see that there were some small dispositions, which is the difference between GAAP net income and the adjusted net income, but truly diminished in the context of a portfolio of this size.

Uh, so the, the growth in the book, yields, that you've, you've been seeing not just this quarter, but the past several quarters, is just as a result of the, the sort of normal investing activity at the current interest rate and spread environment, uh, reinvesting principal and interest as it comes due. And then, of course, the free cash flow from the business.

anything on the default front, uh, new notices around uh,

Catastrophes. I don't know whether you had the recoveries coming off of, uh,

Maybe the wildfires anything like that. That is, uh, worth calling out.

Quarter. And now it is 421 as at the end of the second quarter. So those tend to cure at a higher than normal rate compared to other nods. And we're seeing exactly the behavior that we'd expect in that population. And you mentioned the wildfires, uh, just given the home price point in the geographic area affected by the wildfires in Southern California. We have a very limited number of nodes, single digit number of nods uh related to those regions.

Yeah, maybe just a broader view on, kind of how things trended. I'd say. Overall, we're we continue to be encouraged by the credit performance of of the portfolio, including Trends in the default population, the broad resiliency that we've seen in the economy, the labor market house price is still sitting near or at record highs in most markets continue to set a favorable backdrop, our existing borrowers, remain incredibly, well situated with strong credit profiles and given the quality of our book. Um, we're continuing to see that translate through to our default experience and overall credit performance.

Yeah, if you look at the... and sorry to be a...

Look at wordy, but when you look at the recoveries in the quarter, anything that you would put your finger on that was kind of the more important driver of that home price appreciation? Anything else that you would isolate rather than just a broad credit performance?

No. So what you're saying recovery? I guess. We'll look at it. And say, it's cure activity, right? It's those borrowers. Who've been in default.

Who have been able to find their footing, come out of default, and resume payment on their mortgage in a timely fashion.

What we are generally, seeing is Right borrowers. Have the ability a better ability to cure themselves out of the default position 1. If you are operating against a favorable, macro backdrop, with a strong labor market, so those borrowers, who fell behind because they lost their job, have the ability to find new employment quickly and that Still Remains the case, um, and other borrowers benefit from significant amounts of embedded Equity where, uh, even if they can't cure out of a default on their own, they can still sell their way out of a problem before. They ultimately progress to a claimable outcome, those Trends are still there. We could talk about how they sit relative to where we were in Prior periods. But that broad favorable, backdrop continues to come through the 1. Other item that we've noted that does play through and it's in the first half. Um, is the seasonal dynamic in our default population. Recall, we've talked about this in the past but borrowers in the first half, um, generally benefit from either the receipt of bonus.

This income is for some of them or, on a much broader sense, tax refunds, which come through, and the tax refund can be applied by borrowers who fall behind to help them catch up. That trend doesn't then follow in the third or fourth quarter because seasonally they're not getting tax refunds in the third quarter. In the fourth quarter, there's a new outflow, with many families choosing to prioritize spending for the holidays and other year-end expenses. And so that's dynamic. Um, still came through, and so the pattern that you see in our default experience and our default population.

But it aligns with what we've seen in past years because of that seasonal dynamic as well.

Thank you very much.

As a reminder, if you have a question, please press star 1. The next question comes from Bose George from KBW. Please go ahead.

Hey everyone. Good afternoon. Um, um the regulatory fronts, the fhfa, you know, put out this notice for comment on the Equitable housing program. You know, does that potentially have an impact on the me footprint? Or is there anything else that you see from the fhfa that could impact the me footprint?

Yeah, I I

Programs. I said,

So it was a notice of proposed rulemaking, right? It's not a, a final outcome, but it would say, even if the plans are eliminated, we still expect that the the broad idea of access and affordability is going to remain Central to housing policy decisions in DC policy makers, and Regulators across all administrations have always worked to identify ways to support borrowers, right? Increase available Supply, provide expanded access to home ownership and so eliminating formerly eliminating. The Equitable Housing Finance plans doesn't change this really at all. And so we don't expect that the announcement is going to have any consequential impact on our business or our Market, uh, at this point.

Okay. So you feel like so the change is more of a a reduction sort of the regulatory side as opposed to actual sort of loans that flow through these programs.

Or, uh, early in the second quarter, we had already issued an order terminating all special purpose credit programs that were supported by the GSCs. I think it was actually late in March, and we haven't seen any change really of consequence flow through from that. Um, so we're not expecting that this next step, in terms of the proposal to eliminate the Equitable Housing Finance plans, will have an impact either.

Okay, great. And actually just one more regulatory one as well. Um, you know, so you noted the mortgage interest tax deduction. Do you know what percentage of borrowers use that in terms of as opposed to this itemized or, you know, using the standard deduction?

Yeah, um, again it's going to depend on the environment and the year. I think what we generally observe is that prior to the passage of the Tax Cuts and Jobs Act, you had about...

70% of of the filers were taking a standard deduction that number is increased to 90% with the passage of the tax cuts and job act and the the increase in the standard deduction. And so we think that this is a common sense, uh, you know, provision it uh, it will provide a benefit to, you know, to many homeowners. Um, it's really about providing borrowers, uh, benefit and relief but it's because of those those numbers, right? If you only have roughly 10% of filers who itemize. Um it's not going to necessarily

Have a dramatic dramatic impact on, on our borrower base, but there will certainly be borrowers who deserve the benefit and and will be able to now uh to harvest it.

Okay, great, that's helpful. Thanks.

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

Thank you again for joining us. We'll be participating in the JP Morgan future of financials Forum. Virtually on August 12th, the Barclays Financial Services conference in New York on September 8th and the zelman housing conference in Boston on September 12th. We look forward to speaking with you again soon.

The conference is now concluded. Thank you for attending today's.

presentation, you may now disconnect