NMI Holdings, Inc. (NASDAQ:NMIH) Q4 2023 Earnings Call Transcript
NMI Holdings, Inc. (NASDAQ:NMIH) Q4 2023 Earnings Call Transcript February 14, 2024
NMI Holdings, Inc. beats earnings expectations. Reported EPS is $1.01, expectations were $0.95. NMI Holdings, Inc. isn’t one of the 30 most popular stocks among hedge funds at the end of the third quarter (see the details here).
Operator: Good afternoon and welcome to the NMI Holdings Fourth Quarter 2023 Earnings Conference Call. [Operator Instructions] Please note, this event is being recorded. I would now like to turn the conference over to John Swenson of management. Please go ahead.
John Swenson: Thank you, Gary. Good afternoon and welcome to the 2023 fourth 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 fourth quarter, National MI again delivered standout operating performance, continued growth in our insured portfolio and record financial results, capping a year of tremendous success. We closed 2023 with $40.5 billion of total NIW volume and a record $197 billion of high-quality, high-performing primary insurance in force. We delivered broad success in customer development, continue to innovate in the reinsurance market and once again achieved industry-leading credit performance. In 2023, we generated record GAAP net income of $322.1 million, up 10% compared to 2022. Record diluted earnings per share of $3.84, up 13% compared to 2022 and delivered an 18.2% return on equity.
Looking ahead, I'm excited that the opportunity we have to continue to build on our success. As we plan for 2024, we'll continue to focus on our people. They are talented, innovative and dedicated and we'll continue to invest in our culture with a focus on collaboration, performance and the impact. We'll continue to differentiate with our customers. The mortgage market is connected and evolving and will continue -- we'll work to continue to stand out with our focus on customer service, value-added engagement and technology leadership. We'll continue to prioritize discipline and risk responsibility as we grow our insured portfolio, working to write a large volume of high-quality, high-return business under the protective umbrella of our comprehensive credit risk management framework and we'll continue to focus on building value for our shareholders.
Growing earnings, compounding book value, delivering strong mid-teens returns and prudently distributing excess capital. 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 fourth quarter, delivering significant new business production, consistent growth in our insured portfolio and record financial results. We generated $8.9 billion of NIW volume and ended the period with a record $197 billion of high-quality, high-performing primary insurance in force. Total revenue in the fourth quarter was a record $151.4 million and we delivered GAAP net income of $83.4 million and an 18% return on equity. Overall, we had an exceptionally strong quarter and closed 2023 in a position of real strength. We generated $40.5 billion of NIW volume during the year and exited with $197 billion of primary insurance in force.
Our portfolio is the fastest growing, highest quality and best performing in the MI industry and has enormous embedded value. We now have nearly 630,000 policies outstanding and it helped a record number of borrowers gain access to housing at a time when they needed us most. We enjoyed continued momentum and growth in our customer franchise, activating 70 new lenders in 2023 and ending the year with over 1,500 active accounts. We continue to innovate and find success and broad support in the capital and reinsurance markets. We completed 4 new reinsurance transactions during the year, further extending our comprehensive credit risk transfer program and we continue to efficiently return capital and drive value for shareholders with our upsized share repurchase program.
We were once again recognized as a Great Place to Work, our eighth consecutive award which we view as a reflection of our unique corporate culture and a testament to the hard work and dedication of our talented team and we achieved record full year financial results generating $579 million of total revenue, up 11% compared to 2022. $322 million of GAAP net income, up 10% compared to 2022, $3.84 of diluted earnings per share, up 13% compared to 2022 and an 18.2% ROE. As we begin 2024, we're encouraged by both the broad resiliency that we've seen in the macro environment and housing market and by the continued opportunity and discipline that we see across the private MI industry. The housing market has been strong. House prices have reached new highs, declining rates have spurred incremental activity and underlying strength in the labor market and the recent rally in equity markets have worked to both bolster household balance sheet and drive increasing confidence for prospective buyers.
The mortgage insurance market environment remains constructive as well. Total MI industry NIW volume with an estimated $285 billion in 2023, with the market demonstrating real strength despite the headwind of rising rates through much of the year. Our lender customers and their borrowers continue to rely on us in size for critical down payment support and we expect that the private MI market will remain just as strong in 2024 with long-term secular trends continuing to drive an attractive new business opportunity. The MI pricing environment remains stable and balanced as well, allowing us to fully and fairly support lenders and their borrowers, while at the same time, appropriately protect risk-adjusted returns and our ability to deliver long-term value for our shareholders.
And credit performance continues to track, with underwriting discipline across the mortgage market and existing borrowers well situated with strong credit profiles, record levels of home equity and for most, fixed monthly payments at historically low note rates. As we look ahead, we're confident the macro environment remains resilient, the private MI market opportunity is compelling and we are well positioned to continue to lead with impact and deliver value for our people, our customers and their borrowers and our shareholders. 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.
With that, I'll turn it over to Ravi.
Ravi Mallela: Thank you, Adam. We delivered record financial results in the fourth 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 EPS. Total revenue in the fourth quarter was a record $151.4 million. GAAP net income was $83.4 million or a record $1.01 per diluted share and our return on equity was 18%. We generated $8.9 billion of NIW and our primary insurance in force grew to $197 billion, up 1% from the end of the third quarter and 7% compared to the fourth quarter of 2022. 12-month persistency was 86.1% in the fourth quarter compared to 86.2% in the third quarter. Persistency remains well above historical trends and continues to serve as an important driver of the growth and embedded value of our insured portfolio.
Net premiums earned in the fourth quarter were a record $132.9 million compared to $130.1 million in the third quarter. We earned $983,000 from the cancellation of single premium policies in the fourth quarter compared to $864,000 in the third quarter. Net yield for the quarter was 27 basis points and core yield which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings was 34 basis points both unchanged from the third quarter. Investment income was $18.2 million in the fourth quarter compared to $17.9 million in the third quarter. Total revenue was a record $151.4 million in the fourth quarter, up 2% compared to the third quarter and 14% compared to the fourth quarter of 2022. Underwriting and operating expenses were $29.7 million in the fourth quarter compared to $27.7 million in the third quarter.
Our expense ratio was 22.4% compared to 21.3% in the third quarter. We had 5,099 defaults as of December 31 compared to 4,594 as of September 30. And our default rate was 81 basis points at quarter end. Claims expense in the fourth quarter was $8.2 million compared to $4.8 million in the third quarter. Interest expense in the quarter was $8.1 million. Net income was $83.4 million or a record $1.01 per diluted share, up 1% compared to $1 per diluted share in the third quarter and 17% compared to $0.86 per diluted share in the fourth quarter of 2022. Total cash and investments were $2.5 billion at quarter end, including $114 million of cash and investments at the holding company. Shareholders' equity as of December 31 was $1.9 billion and book value per share was $23.81.
Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio, was $25.54, up 4% compared to the third quarter and 17% compared to the fourth quarter of last year. In the fourth quarter, we repurchased $31.5 million of common stock, retiring 1.1 million shares at an average price of $27.60. As of December 31, we had $177 million of repurchase capacity remaining under our existing program. At quarter end, we reported total available assets under PMIERs of $2.7 billion and risk-based required assets of $1.5 billion. Excess available assets were $1.2 billion. In January, we entered into a new quota share reinsurance treaty and a new excess of loss reinsurance agreement which together will provide forward flow coverage and comprehensive risk protection for our 2024 new business production at an estimated 5% pre-tax cost of capital.
Reinsurance remains a core pillar of our credit risk management strategy and an efficient source of growth capital for our business and we're pleased to have achieved such favorable outcomes in both the quota share and XOL markets. In January, we also saw significant upward movement in our insurer financial strength and holding company credit ratings from all 3 major agencies, receiving upgrades from Moody's and S&P and strong investment-grade debt [ph] ratings from Fitch. We're pleased that each of the agencies has recognized the continued strength of our counterparty profile, uniquely high-quality insured portfolio, best-in-class credit performance, robust balance sheet and consistently strong financial results with their announcements. Overall, we had -- we delivered standout financial results during the fourth quarter with consistent growth in our high-quality insured portfolio and record top line performance, favorable credit experience and continued expense efficiency, driving significant profitability, record EPS and strong returns.
With that, let me turn it back to Adam.
Adam Pollitzer: Thank you, Ravi. Overall, we had a terrific quarter. Capping a record year in which we delivered broad success in customer development, continue to innovate in the reinsurance market, once again achieved industry-leading credit performance and generated exceptionally strong financial results with record profitability, significant growth in book value per share and an 18.2% return on equity. Looking ahead, we're confident in our ability to continue to lead with impact and deliver value for our people, our customers and their borrowers and 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] The first question is from Terry Ma with Barclays.
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