NMI Holdings, Inc. (NASDAQ:NMIH) Q3 2023 Earnings Call Transcript
NMI Holdings, Inc. (NASDAQ:NMIH) Q3 2023 Earnings Call Transcript November 1, 2023
Operator: Good day, and welcome to the NMI Holdings Third Quarter 2023 Earnings Conference Call. After today's presentation, there'll be an opportunity to ask questions. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to Mr. John Swenson. Please go ahead.
John Swenson: Thank you, operator. Good afternoon, and welcome to the 2023 third quarter conference call for National MI. I'm John Swenson, Vice President of Investor Relations and Treasury. Joining us on the call today are Brad Shuster, Executive Chairman; Adam Pollitzer, President and Chief Executive Officer; Ravi Mallela, Chief Financial Officer; and Nick Realmuto, our Controller. Financial results for the quarter were released after the close today. The press release may be accessed on NMI's website located at nationalmi.com under the Investors tab. During the course of this call, we may make comments about our expectations for the future. Actual results could differ materially from those contained in these forward-looking statements.
Additional information about the factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website or through our regulatory filings with the SEC. If and to the extent the Company makes forward-looking statements, we do not undertake any obligation to update those statements in the future in light of subsequent developments. Further, no one should rely on the fact that the guidance of such statements is current at any time other than the time of this call. Also note that on this call, we may refer to certain non-GAAP measures. In today's press release and on our website, we provided a reconciliation of these measures to the most comparable measures under GAAP. Now I'll turn the call over to Brad.
Bradley Shuster: Thank you, John, and good afternoon, everyone. I'm pleased to report that in the third quarter, National MI 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 down payment support. And in the third quarter, we generated $11.3 billion of NIW volume, ending the period with a record $194.8 billion of high-quality, high-performing insurance-in-force. While the macro 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. Policymakers, 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. At 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 are well-positioned to continue to lead with impact 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.
Adam Pollitzer: 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-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 down payment support. We have an exceptionally high-quality insured portfolio and our credit performance continues to stand ahead. Our persistency remains well above historical trend, and when paired with our current NIW volume, has helped to drive continued growth and embedded value gains in our insured book. We've led with innovation in the risk transfer markets and have secured comprehensive reinsurance coverage on nearly all of the policies we've 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. 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 have seen across the private MI market. Underwriting standards remain rigorous and the pricing environment remains balanced and constructive. 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.
With that, I'll turn it over to Ravi.
Ravi Mallela: 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 NIW and our insurance-in-force 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.
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. 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. Our expense ratio was 21.3% compared to 21.8% in the second quarter. We had 4,594 defaults as of September 30 compared to 4,349 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 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 $0.95 per diluted share in the second quarter and 12% compared to $0.90 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, 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. In the third quarter, we repurchased $19.2 million of common 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 PMIERs of $2.6 billion 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.
Adam Pollitzer: Thank you, Ravi. Overall, we had a terrific quarter, once again delivering significant new business production, continued growth in our high-quality insured 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. We have a strong customer franchise, a talented team driving us forward every day, an exceptionally high-quality book covered by a comprehensive set of risk transfer solutions, and a robust balance sheet supported by the significant earnings power of our platform.
Taken together, we are well-positioned to continue 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.
Operator: [Operator Instructions] Your first question comes from Rick Shane with JPMorgan. Please go ahead.
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