NMI Holdings Inc

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 will be an opportunity to ask questions. To ask a question, you will press star, then 1 on your touchstone phone. To withdraw from the question queue, please press star, then 2. Please note this event is being recorded. I would now like to turn the conference over to John Swenson of management. Please go ahead.

Thank you, Anthony. Good afternoon and welcome to the 2023 second 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 Schuster, Executive Chairman, Adam Pulitzer, President and Chief Executive Officer, Ravi Malala, Chief Financial Officer, and Nick Wilmuto, 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 nationalnmi.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 noted on this call, we may refer to certain non-GAAP measures. In today's press release and on our website, we have provided a reconciliation of these measures to the most comparable measures under GAAP. Now I'll turn the call over to Brett.

Thank you, John, and good afternoon, everyone. As we talk today, I'm greatly encouraged, both by the resiliency of the broader macro environment and housing market, and by the significant and consistent success we're achieving across our business. In the second 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 second quarter, we generated $11.5 billion of NIW volume, ending the period with a record $191.3 billion of high-quality, high-performing insurance in force. 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 for all borrowers 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 borrowers with a fair and equitable opportunity to access the housing market, establish a community identity, and build long-term wealth through homeownership. We are actively engaged and committed to equally supporting borrowers from all communities and are proud to have helped over 1.6 million borrowers to date realize their home ownership goals. Overall, we had a terrific second 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. Thank you, Brad, and good afternoon, everyone.

National MI continued to outperform in the second quarter, delivering significant new business production, strong growth in our insured portfolio, and record financial results. We generated $11.5 billion of NIW volume and ended the period with a record $191.3 billion of high-quality, high-performing insurance in force. Total revenue in the second quarter was a record $142.7 million, and we delivered record gap net income of $80.3 million, or $0.95 per diluted share, and an 18.6% 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 proven to be resilient in the face of increased interest rates. we see an attractive and 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 strong NIW volume has helped to drive continued growth and embedded value gains in our insured book. And we continue to manage our expenses and capital position with discipline and efficiency. With today's incremental $200 million share repurchase authorization serving as another important step in our effort to maintain funding balance and progress capital distribution opportunities for our shareholders. 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 continues to be the prudent and appropriate course, and we are encouraged by the continued discipline that we see across the broader 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. I also want to note how proud I am that for the eighth consecutive year, National MI has been recognized as a great place to work. 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 believe that the quality of our team and the culture that we've established are key competitive advantages, and it is gratifying to again be recognized for these strengths. Looking ahead, we are well positioned to continue to serve our customers and their borrowers, invest in our employees and their success, and deliver through the cycle growth, returns, and value for our shareholders. With that, I'll turn it over to Ravi.

Thank you, Adam. We delivered record financial results in the second 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 $142.7 million. GAAP net income was a record $80.3 million, or 95 cents per diluted share, and our return on equity was 18.6%. We generated $11.5 billion of NIW, and our primary insurance and force grew to $191.3 billion, up 2.5% from the end of the first quarter and 13.4% compared to the second quarter of 2022. Twelve-month persistency in our primary portfolio improved again, reaching 86%, compared to 85.1% in the first quarter. Persistency continues to serve as an important driver of the growth and embedded value of our insured portfolios. Net premiums earned in the second quarter were a record 126 million, compared to 121.8 million in the first quarter. We earned 1.1 million from the cancellation of single premium policies in the second quarter, compared to $1.4 million in the first quarter. Net yield for the quarter was 26.7 basis points, up from 26.3 basis points in the first quarter. Core yield, which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings, was 33.8 basis points, up from 33.7 basis points in the first quarter. Investment income was $16.5 million in the second quarter compared to $14.9 million in the first quarter. Underwriting and operating expenses were $27.5 million in the second quarter compared to $25.8 million in the first quarter. Our expense ratio was 21.8% compared to 21.2% in the first quarter. we had 4,349 defaults in our primary portfolio at June 30th, compared to 4,475 at March 31st, and our default rate declined to 71 basis points at quarter end. Claims expense in the second quarter was $2.9 million compared to $6.7 million in the first quarter, reflecting the broad resiliency of the housing market, the strong position and performance of our existing borrowers, and continued cure activity within our previous default population. Interest expense in the quarter was $8 million. Net income was a record $80.3 million, or $0.95 per diluted share, compared to $0.88 per diluted share in the first quarter and $0.86 per diluted share in the second quarter of 2022. Total cash and investments were $2.3 billion at quarter end including $139 million of cash and investments at the holding company. Shareholders' equity as of June 30th was $1.7 billion, and book value per share was $21.25. Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio, was $23.53, up 4.3% compared to the first quarter, and 18.2% compared to the second quarter of last year. In the second quarter, we repurchased $26 million of common stock, retiring slightly more than 1 million shares at an average price of $24.83. To date, we have repurchased a total of $97 million of stock under the original $125 million authorization, retiring 4.6 million shares at an average price of $20.99. Today's new $200 million authorization provides us with significant incremental repurchase capacity and will run through December 31st, 2025. In July, we entered into a new Excessive Loss Reinsurance Agreement that will provide forward flow risk protection for policies originated in the third and fourth quarters of this year. The new deal further extends our comprehensive credit risk transfer program and carries an estimated 6.25% weighted average lifetime pre-tax cost. Our continued ability to compress the cycle time between transactions, execute on favorable terms, and secure forward flow coverage for our future production is particularly valuable as it serves to minimize our warehouse exposure and limit the credit risk retained in our high-quality insured portfolio. At quarter end, we reported total available assets under PMIRs of $2.5 billion and risk-based required assets of $1.3 billion. Excess available assets were $1.2 billion. Overall, we delivered standout financial results during the second quarter, with continued 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. With that, let me turn it back to Adam.

Thank you, Ravi. We had a terrific quarter, once again delivering significant new business production, continued growth in our insured portfolio, and record financial performance. Looking forward, we're confident. The macro environment and housing market have proven to be resilient in the face of increased interest rates And 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'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 strong performance 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.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then 2.

At this time, we'll pause momentarily to assemble our roster. Our first question will come from Doug Harder with Credit Suisse.

You may now go ahead.

Thanks. Can you talk a little bit about the current environment for premium yields and your outlook? It seems like it's stabilized in the quarter. Is that a trend we can expect going forward and kind of where are new yields being written relative to the Enforce book?

Sure, I'll take that. This is Ravi. Net yield in the quarter was 26.7 basis points versus 26.3 basis points in Q1. And both core and net were slightly up quarter over quarter. And I would say we benefited from the increase in persistency, but primarily it came from the cumulative gains we incurred from new business pricing over the last year plus. And certainly we benefit a little bit from the modest improvement in quota share costs. And that comes through from higher profit commission from seeded claims expense improvement that we saw in the quarter. But, you know, what we talked about in the past is just a focus on core yield, which really excludes reinsurance and cancellation earnings. And we, you know, we believe that will remain relatively stable, you know, given that we have strong persistency and the rate actions that we've taken so far have been positive. But you know, you have to really take into account the fact that that's balanced by the high quality production, which tends to come on with a different rate profile.

And then Doug, in terms of how premium rate on new business written in Q2 stacks up against that, we don't provide specifics about our premium rate, but we do continue to see the benefit of those rate increases that Ravi mentioned. We've really worked hard to achieve them over the past year, And in the business that we wrote this quarter, the $11.5 billion of high quality, high return volume is most importantly supportive of our strong mentee and return objectives.

Great. Thank you.

Our next question will come from Arun Saghanovich with Citi. You may now go ahead.

Thanks. This environment seems to be almost like a Goldilocks for private mortgage insurance, you know, home price appreciation, low claims experience, still being able to, to, you know, have a decent amount of new origination and high persistency. What, what, what are you, what are you worried about? What, what would be something that you would be concerned about for this environment to change?

Yeah, look, I, I think we're, Aaron took a question. We're, we're, We're encouraged, and I'd say incrementally more optimistic when we look at recent data and headlines. Certainly, I think we can all see that macro risks have been receding. And it's been receding really since our last call in May, right? We've had a resolution of the debt ceiling deadline. We've had stronger than expected growth. Recent inflation data has shown signs of easing. We've seen stabilization of the regional banking sector through this quarter's earnings announcements. And alongside that, we've got increasing consumer confidence. And so there's reason to be optimistic, in particular because of how resilient the housing market and house prices have been. At the same time, we mentioned in our prepared remarks that risks remain. We didn't elaborate, but really there are risks that remain broadly to the economy. It's not a certainty that the Fed is going to be able to engineer a soft landing. And so when we look at it, the Fed just tightened again. and still has a hawkish stance from our vantage point. The commercial real estate market's in focus. We've got the pending restart of student loan payments as something that may impact household finances. And regional banks are now facing increased capital requirements that over time may curtail lending activity. And so when we look at it, what we're concerned about is really what happens around us, those items that we can't control. We can control how conservatively and appropriately we're managing our business, how we're managing our capital position, our risk mix, our pricing decisions. But what happens around us is of consequence. And so when we look at those items in balance, we do still see the potential for volatility on the horizon from a macroeconomic standpoint. And that's what we're concerned about.

That's helpful. Thank you. And then just secondarily, the persistency rate inched up a bit higher. What do you think that in this kind of rate environment would be like the maximum? Is it getting kind of close to wherever that maximum would be on a persistency level?

Aaron, that's a good question. I think I mentioned during the call that, you know, we reached 86% in Q2 up from 85.1% in Q1. And look, we expect it to remain well above historical trend through year end. And we might see some modest improvement going forward. But I think the way to think about it is that it's probably going to be naturally a little bit more muted over time. We've just seen it increase just so much. And there just is, as we go through our portfolio, a minimum level of turnover that's going to occur. And we're going to start to see some of our portfolio, our most recent vintages, hitting points of time and cancellations. And as a result, you know, we're probably going to see some modest improvement going forward, but it's going to be muted over the course of the year. But it's still well above historical trends, and we're benefiting significantly from the high persistency.

Thank you. Our next question will come from Rick Shane with JP Morgan.

You may now go ahead. Thanks for taking my questions this afternoon, everybody. Hey, I'd like to talk a little bit about in the unusual environment that we're in, the puts and takes for MI penetration in the context of overall mortgage volume. You know, on one hand, we're hearing that cash buyers have huge advantages in this market, but that's obviously not normally the, they would not normally be competition for your customers. I'm wondering if you're seeing any substitution in that market. And at the same time, on the other hand, robust pricing for starter homes presumably is driving increased demand. I'm kind of curious how you balance that.

Yeah, Rick, it's a great set of questions. And I may actually broaden it to just talk generally about where we see origination activity developing and the opportunity that we have both in the near term and over the longer term to support borrowers and help them gain access to their homes. When we spoke last May, we shared our expectation that we would see a total purchase origination market of roughly $1.3 trillion for the year. And so I think the starting point, right, to preface your question is we're actually still seeing, notwithstanding the fact that there are headlines around affordability, that rates remain elevated, we're seeing a really constructive purchase environment. And even though it sits behind the record levels that we saw in what I'll call the pandemic years, by historical standards, it's a very large purchase market. And within that, we're seeing a tremendous opportunity to write new business. You know, we've guided through the course of this year that we expect to see a total private MI market of give or take $300 billion. And that remains the case. The first half of the year has come in generally in line with our expectations, and our outlook remains the same today. And so, you know, look, there are buyers out there who will transact. They need MI support. And over the long term, not just through 2023, but over the long term, there are a number of fundamental drivers of both purchase volume as well as MI demand that we see sustaining our market opportunity. And so we haven't seen a shift because of, you know, maybe the rise and increasing advantage that cash buyers have or penetration rates otherwise. It's a very large market that's coming in line with our expectations and it gives us, you know, increased confidence as we think about the long-term opportunity. Got it. Okay.

Very helpful. And thank you for reframing my question. I think that's a

better way to explain it. Thank you. Our next question will come from Mark Hughes with Truist.

You may now go ahead.

Yeah, thank you. Could you say again, what was the share buyback dollar amount in the second quarter, and then any insight on your pacing on the buyback as you think about the balance of the year and the next year?

Sure. Mark, it's Ravi. In Q2, we did about 26 million in share repurchases, slightly over 1 million of shares. Certainly, we're pleased with the execution. You know, with today's announcement, we have a little bit left in the 125 million share repurchase program. And so, when you combine that with the 200 million, you get to 228 million capacity. and we have through the end of 2025 to execute. As you know, we're not on a set schedule. It really depends on, you know, a number of factors, including, you know, market dynamics, how we feel about things in the market, in particular, our stock price relative to the relative value in the shares. And so, we plan to execute opportunistically, and, you know, we think about things going forward as the market progresses. We adjust accordingly.

Mark, I think, though, as a rough guide, we've got $228 million of capacity to be deployed over the next 10 quarters, and you could think about things on a roughly rateable basis through the end of the authorization period in December of 25, although I think Ravi's caveat that it's not going to be firmly regimented is absolutely the case.

Right, so maybe similar to Q2. And then on the expense ratio, Refresh me, are there any capital market expenses in that number? And then up a little bit sequentially, anything unusual in there? And how do you think it should trend going forward?

Mark, this is Robbie. Just to answer, there are two parts to your question there. From the capital market side, the XOLs typically are structured in a way where We don't pay specific fees that we outline like the way we do with ILNs. It's all rolled into the actual weighted average lifetime pre-tax costs that we quoted. And so that's separate. Maybe just to take the second part of your question just on sort of quarter-over-quarter changes. You know, we're always focused on managing the business with discipline and efficiency. And, you know, we're pleased with the 21.8% expense ratio in Q2. you know, we always try to focus on the ratio and not the dollars. And we're really operating with the same footprint. We have the smallest headcount by far in the industry. And if you want to think about this quarter in particular, just to give some color for that, you know, in March, we award salary increases. Those could include, you know, merit, cost of living adjustments, promotions, and grant equity awards. And the Q2 increases and conferences Q1 were one of the components that drove the quarter-over-quarter change. And then another portion of that is just ordinary course projects. You know, the pickup we saw from Q1 to Q2 were just sort of ordinary course things that we do on a regular basis. We also saw NIW pickup, and NIW volume increased 31 percent quarter-over-quarter, and that increases our variable costs, and that also contributed to our quarter-quarter increases. So take all of that together. That's what drove the increase. You know, we've said this before in the past about our OPEX. We don't provide guidance, but, you know, we do expect OPEX from a dollars perspective to grow because we're always investing in people, in systems, in risk management strategies, and we grow. And so, you know, when you put all those together, you you could see some uptick in Q4 and Q3 in terms of dollars of expenses.

Appreciate that detail. Thank you.

Next question will come from Bose George with KBW.

You may now go ahead.

Yes, good afternoon. I just wanted to go back to the discussion on macro, especially the improved expectations for home prices, you know, I guess over the course of this year. How is that sort of running through your thoughts on loss severities?

Look, I'd say we're certainly encouraged by the broad resiliency that we've seen in the macro environment and the housing market. For reserving purposes, though, we've always aimed to take what we would say is an appropriate but also appropriately conservative view. And so in practice, this means that we generally anchor more to downside scenarios when setting our position, and that remained the case in Q2. We did, in fact, though, factor for the resiliency that we've observed in the macro environment and housing market year to date, but we balanced that out. by the need to still maintain a conservative stance and reflect some of those risks that I talked about that we still see on the horizon. And so at June 30th, what that meant is that we moderated our expectations for economic strain and house price declines going forward in our reserving analysis, but we didn't fully remove what I would call a stress bias from our work.

Okay, that makes sense. Thanks. And then just switching to the ILN market, it looks like one of your peers is in the market with the deal. Is that market starting to look better in terms of potentially reentering for you guys?

You know, what I would say is that it certainly, you know, we're encouraged by seeing the ILN market rebound, you know, and certainly having one of our folks in the industry in the markets you know, the first since September. That's very exciting for us, and certainly we feel that it's nice to see the market healing a little bit. When we think about the state of the reinsurance markets, you know, and we're happy to do the most recent XOL, you know, we think capacity has been available broadly in the market. It's been constructive on constructive terms. In particular, our XOL, we had new reinsurers come into this latest XOL. And, you know, pricing and risk appetite has been wider than points in the past. And, you know, not every reinsurer is sort of back in the market. But, you know, we were happy to execute the deal. It's a competitive deal on attractive terms and certainly reflects an efficient form of PMIR's capital.

Yeah, those, these are all favorable developments, right? Our ability to continue executing on favorable terms in size and with speed in the traditional reinsurance markets. And we've noted the deal as well that you touched on. And that's a constructive one, to see a market that we have valued and we've accessed meaningfully in the past rebound constructively. It gives us more optionality and gives us additional outlets, which is valuable as we go forward.

Okay, great. Thanks a lot. This question will come from Jeffrey Dunn with Dowling.

You may now go ahead.

Thanks. Good afternoon. First question, was there an OCTO dividend up in the quarter?

Yeah, there was. We distributed $98 million of ordinary course dividends from NMIC, the lead operating subsidiary, up to the holding company during the quarter.

Okay. And then with respect to the assumptions in your loss provisioning, I think you were taking a very conservative stance on home prices. What are you now thinking as you look forward in your assumptions?

Yeah, so Jeff, we've never specifically outlined the underlying assumption, but suffice it to say, you know, while we have moderated our expectations for what strain might look like, we have still embedded our, you know, maintained our stress bias in the analysis.

Okay. And last question. I don't know the details on this, but a NAC just announced the formation of a Bermuda subsidiary to help the CRT business. Is that something that management and the board have ever discussed as a strategy for national or something that you think could be kind of within a three-year strategic plan for a national?

We don't have anything immediately on the horizon. We'll be curious to learn more about the announced announcement. It is a path that some others in our sector have pursued. Right now, we find the best value of deploying our capital to be in support of our primary business. We continue to grow our customer franchise. We continue to grow you know, the opportunity that we're able to support, and that remains our focus for now.

Okay, thank you. Our next question will come from Eric Hagan with BTIG.

You may now go ahead.

Hey, thanks. How are we doing? First question here, I mean, how do you feel like homeowners are, you know, keeping up with inflation at this point, especially the borrowers with high, you know, DTI to begin with? I realize the macro data suggests one thing, but is there anything that maybe you're adjusting for at the portfolio level? And how do you maybe adjust for the risk that inflation stays higher for longer, if you will?

Yeah, Eric, it's a good question. Look, I think first and foremost, these are, among other items, ones that we account for from the standpoint of both pricing as well as actively managing the flow of risk and the mix of that risk coming into our portfolio. One of the risk markers that we consider, both on a standalone basis, but also how it interacts with other risk markers, is a borrower's debt-to-income ratio, which is essentially a household coverage metric. And we price for higher DTI borrowers in expectation that we'll see higher claims activity for those borrowers because their household finances are a bit more stretched. And we also actively manage the concentration of risk coming through. And so like all other risk markers, like all other risk factors that are out there, we manage for it in a few ways. We try to price for it for the risks that we're comfortable taking. We define what our risk appetite is and try to manage our mix such that we don't exceed that. And then we also pursue reinsurance consistently to make sure we don't have an outsized aggregation in the portfolio.

Yep, that's helpful. You know, what would you maybe identify at this point as a few of the stronger catalysts for first-time homebuyers at this point? Like I think you guys mentioned the expiration of student loan forbearance. Are you thinking that could have a bigger impact on the existing book or the forward opportunity as some borrowers might not be able to qualify, or just how are you guys thinking about that? Thanks.

Yeah, look, I'd say it's obviously pretty new. What I'd say broadly is we're watching it right now. particularly because we've got an election cycle coming up. I think the Biden administration has a clear vested interest in ensuring a smooth transition for borrowers and is taking steps to ensure that that transition is seamless. To that end, we've seen several important announcements, both from the administration as well as from the Department of Education, in the month or so since the Supreme Court ruling came out striking down the original student debt relief program. And so we'll see. It is possible that the upcoming resumption of payments will have an impact on certain borrowers in our portfolio who perhaps budgeted expecting more permanent relief. From an overall credit standpoint, though, we don't expect at this point that the restart of student loan payments will have a material impact on the performance of our portfolio. As for the potential impact on new business activity, I'd love to give you a specific answer, but admittedly, it's difficult to tell. On the one hand, you could see an even greater need for private MI support before with borrowers who now have to make additional monthly payments towards their student debt, not able to save as much for a down payment as previously hoped. But you could also see some pressure the other way with borrowers who were already stretched by higher rates and house prices now pushed to either look at less expensive homes, and it's the loan size that drives NIW, or perhaps being moved out of the buyer market entirely. So it's one we really need to monitor at this point before we know which way it will come out. Overall, though, we don't think it will have a consequential impact either on the credit performance of the portfolio or the new business opportunity.

Appreciate the good color. Thank you.

This concludes our question and answer session.

I would like to turn the conference back over to management for any closing remarks.

Well, thank you all again for joining us. We'll be participating in the Barclays Financial Services Conference on September 11th in New York and the Zelman Virtual Housing Summit on September 19th.

We look forward to speaking with you again soon. Conference is now concluded. Thank you for attending today's presentation. You may now disconnect. you Thank you. So, Thank you.

Good afternoon and welcome to the NMI Holdings, Inc. Second Quarter 2023 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 will be an opportunity to ask questions. To ask a question, you will press star then 1 in your touchstone phone. To withdraw from the question queue, please press star then 2. Please note this event is being recorded. I would now like to turn the call to John Swenson of Management. Please go ahead.

Thank you, Anthony. Good afternoon and welcome to the 2023 second quarter conference call for National M.I. I'm John Swenson, Vice President of Investor Relations and Treasury. Joining us on the call today are Brad Schuster, Executive Chairman, Adam Pulitzer, President and Chief Executive Officer, Ravi Malala, Chief Financial Officer, and Nick Wilmuto, our Comptroller. Financial results for the quarter were released after the close today. The press release may be accessed on NMI's website, located at nationalni.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 noted on this call, we may refer to certain non-GAAP measures. In today's press release and on our website, we have provided a reconciliation of these measures to the most comparable measures under GAAP. Now I'll turn the call over to Brad.

Thank you, John, and good afternoon, everyone. As we talk today, I'm greatly encouraged, both by the resiliency of the broader macro environment and housing market, and by the significant and consistent success we're achieving across our business. In the second 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 second quarter, we generated $11.5 billion of NIW volume ending the period with a record $191.3 billion of high-quality, high-performing insurance in force. 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 for all borrowers 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 borrowers with a fair and equitable opportunity to access the housing market, establish a community identity, and build long-term wealth through home ownership. We are actively engaged and committed to equally supporting borrowers from all communities and are proud to have helped over 1.6 million borrowers to date realize their home ownership goals. Overall, we had a terrific second 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. Thank you, Brad, and good afternoon, everyone.

National MI continued to outperform in the second quarter, delivering significant new business production, strong growth in our insured portfolio, and record financial results. We generated $11.5 billion of NIW volume and ended the period with a record $191.3 billion of high-quality, high-performing insurance in force. Total revenue in the second quarter was a record $142.7 million, and we delivered record gap net income of $80.3 million, or $0.95 per diluted share, and an 18.6% 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 proven to be resilient in the face of increased interest rates. we see an attractive and 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 strong NIW volume has helped to drive continued growth and embedded value gains in our insured book. And we continue to manage our expenses and capital position with discipline and efficiency. With today's incremental $200 million share repurchase authorization serving as another important step in our effort to maintain funding balance and progress capital distribution opportunities for our shareholders. 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 continues to be the prudent and appropriate course, and we are encouraged by the continued discipline that we see across the broader 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. I also want to note how proud I am that for the eighth consecutive year, National MI has been recognized as a great place to work. 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 believe that the quality of our team and the culture that we've established are key competitive advantages, and it is gratifying to again be recognized for these strengths. Looking ahead, we are well positioned to continue to serve our customers and their borrowers, invest in our employees and their success, and deliver through the cycle growth, returns, and value for our shareholders. With that, I'll turn it over to Ravi.

Thank you, Adam. We delivered record financial results in the second 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 $142.7 million. GAAP net income was a record $80.3 million, or 95 cents per diluted share, and our return on equity was 18.6%. We generated $11.5 billion of NIW, and our primary insurance and force grew to $191.3 billion, up 2.5% from the end of the first quarter and 13.4% compared to the second quarter of 2022. Twelve-month persistency in our primary portfolio improved again, reaching 86%, compared to 85.1% in the first quarter. Persistency continues to serve as an important driver of the growth and embedded value of our insured portfolios. Net premiums earned in the second quarter were a record 126 million, compared to 121.8 million in the first quarter. We earned 1.1 million from the cancellation of single premium policies in the second quarter, compared to $1.4 million in the first quarter. Net yield for the quarter was 26.7 basis points, up from 26.3 basis points in the first quarter. Core yield, which excludes the cost of our reinsurance coverage and the contribution from cancellation earnings, was 33.8 basis points, up from 33.7 basis points in the first quarter. Investment income was $16.5 million in the second quarter compared to $14.9 million in the first quarter. Underwriting and operating expenses were $27.5 million in the second quarter compared to $25.8 million in the first quarter. Our expense ratio was 21.8% compared to 21.2% in the first quarter. we had 4,349 defaults in our primary portfolio at June 30th compared to 4,475 at March 31st, and our default rate declined to 71 basis points at quarter end. Claims expense in the second quarter was $2.9 million compared to $6.7 million in the first quarter, reflecting the broad resiliency of the housing market, the strong position and performance of our existing borrowers, and continued cure activity within our previous default population. Interest expense in the quarter was $8 million. Net income was a record $80.3 million, or $0.95 per diluted share, compared to $0.88 per diluted share in the first quarter and $0.86 per diluted share in the second quarter of 2022. Total cash and investments were $2.3 billion at quarter end, including $139 million of cash and investments at the holding company. Shareholders' equity as of June 30th was $1.7 billion, and book value per share was $21.25. Book value per share, excluding the impact of net unrealized gains and losses in the investment portfolio, was $23.53, up 4.3% compared to the first quarter, and 18.2% compared to the second quarter of last year. In the second quarter, we repurchased $26 million of common stock, retiring slightly more than 1 million shares at an average price of $24.83. To date, we have repurchased a total of $97 million of stock under the original $125 million authorization, retiring 4.6 million shares at an average price of $20.99. Today's new $200 million authorization provides us with significant incremental repurchase capacity and will run through December 31st, 2025. In July, we entered into a new Excessive Loss Reinsurance Agreement that will provide forward flow risk protection for policies originated in the third and fourth quarters of this year. The new deal further extends our comprehensive credit risk transfer program and carries an estimated 6.25% weighted average lifetime pre-tax cost. Our continued ability to compress the cycle time between transactions, execute on favorable terms, and secure forward flow coverage for our future production is particularly valuable as it serves to minimize our warehouse exposure and limit the credit risk retained in our high-quality insured portfolio. At quarter end, we reported total available assets under PMIRs of $2.5 billion and risk-based required assets of $1.3 billion. Excess available assets were $1.2 billion. Overall, we delivered standout financial results during the second quarter, with continued 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. With that, let me turn it back to Adam.

Thank you, Ravi. We had a terrific quarter, once again delivering significant new business production, continued growth in our insured portfolio, and record financial performance. Looking forward, we're confident. The macro environment and housing market have proven to be resilient in the face of increased interest rates And 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'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 strong performance 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.

We will now begin the question and answer session. To ask a question, you may press star then 1 on your touch-tone phone. If using a speakerphone, please pick up your handset before pressing the keys. To withdraw from the question queue, please press star then 2. At this time, we'll pause momentarily to assemble our roster.

Our first question will come from Doug Harder with Credit Suisse.

You may now go ahead.

Thanks. Can you talk a little bit about the current environment for premium yields and your outlook? It seems like it's stabilized in the quarter. Is that a trend we can expect going forward and kind of where are new yields being written relative to the Enforce book?

Sure, I'll take that. This is Ravi. Net yield in the quarter was 26.7 basis points versus 26.3 basis points in Q1. And both core and net were, you know, slightly up quarter over quarter. And I would say we benefited from, you know, the increase in persistency, but primarily it came from the cumulative gains we incurred from new business pricing over the last year plus. And certainly, we benefit a little bit from the modest improvement in quota share costs. And that comes through from higher profit commission from seeded claims expense improvement that we saw in the quarter. But, you know, what we talked about in the past is just a focus on core yield, which really excludes reinsurance and cancellation earnings. And we, you know, we believe that will remain relatively stable, you know, given that we have strong persistency and the rate actions that we've taken so far have been positive. But, you know, you have to really take into account the fact that that's balanced by the high-quality production, which tends to come on with a different rate profile.

Yeah, and then, Doug, in terms of, you know, how premium rate on new business written in Q2 stacks up against that, we don't provide specifics about our premium rate, but we do continue to see the benefit of those rate increases that Ravi mentioned. We've really worked hard to achieve them over the past year. And, you know, in the business that we wrote this quarter, the $11.5 billion of high-quality, high-return volume is most importantly supportive of our strong mid-teen return objectives.

Great. Thank you.

Our next question will come from Aaron Saganovich with Citi. You may now go ahead.

Thanks. This environment seems to be almost like a Goldilocks for private mortgage insurance, home price appreciation, low claims experience, still being able to have a decent amount of new origination and high persistence. What are you worried about? What would be something that you would be concerned about for this environment to change?

Yeah, look, I think we're, Aaron took a question. We're encouraged, and I'd say incrementally more optimistic when we look at recent data and headlines. Certainly, I think we can all see that macro risks have been receding. And it's been receding really since our last call in May, right? We've had a resolution of the debt ceiling deadline. We've had stronger than expected growth. Recent inflation data has shown signs of easing. We've seen stabilization of the regional banking sector through this quarter's earnings announcements. And alongside that, we've got increasing consumer confidence. And so there's reason to be optimistic, in particular because of how resilient the housing market and house prices have been. At the same time, we mentioned in our prepared remarks that risks remain. We didn't elaborate, but really there are risks that remain broadly to the economy. It's not a certainty that the Fed is going to be able to engineer a soft landing. And so when we look at it, the Fed just tightened again. and still has a hawkish stance from our vantage point. The commercial real estate market's in focus. We've got the pending restart of student loan payments as something that may impact household finances. And regional banks are now facing increased capital requirements that over time may curtail lending activity. And so when we look at it, what we're concerned about is really what happens around us, those items that we can't control. We can control how conservatively and appropriately we're managing our business, how we're managing our capital position, our risk mix, our pricing decisions. But what happens around us is of consequence. And so when we look at those items in balance, we do still see the potential for volatility on the horizon from a macroeconomic standpoint. And that's what we're concerned about.

That's helpful. Thank you. And then just secondarily, the persistency rate, you know, What do you think that in this kind of rate environment would be like the maximum? Is it getting kind of close to wherever that maximum would be on a persistency level?

Aaron, that's a good question. I think I mentioned during the call that, you know, we reached 86% in Q2 up from 85.1% in Q1. And look, we expect it to remain well above historical trend through year end. And we might see some modest improvement going forward. But I think the way to think about it is that it's probably going to be naturally a little bit more muted over time. We've just seen it increase just so much. And there just is, as we go through our portfolio, a minimum level of turnover that's going to occur. And we're going to start to see some of our portfolio, our most recent vintages, hitting points of time and cancellations. And as a result, you know, we're probably going to see some modest improvement going forward, but it's going to be muted over the course of the year. But it's still well above historical trends, and we're benefiting significantly from the high persistency.

Thank you. Our next question will come from Rick Shane with JP Morgan. You may now go ahead.

Thanks for taking my questions this afternoon, everybody. Hey, I'd like to talk a little bit about in the unusual environment that we're in, the puts and takes for MI penetration in the context of overall mortgage volume. You know, on one hand, we're hearing that cash buyers have huge advantages in this market, but that's obviously not normally the, they would not normally be competition for your customers. I'm wondering if you're seeing any substitution in that market. And at the same time, on the other hand, robust pricing for starter homes presumably is driving increased demand. I'm kind of curious how you balance that.

Yeah, Rick, it's a great set of questions. And I may actually broaden it to just talk generally about where we see origination activity developing and the opportunity that we have both in the near term and over the longer term to support borrowers and help them gain access to their homes. When we spoke last May, we shared our expectation that we would see a total purchase origination market of roughly $1.3 trillion for the year. And so I think the starting point, right, to preface your question is we're actually still seeing, notwithstanding the fact that there are headlines around affordability, that rates remain elevated, we're seeing a really constructive purchase environment. And even though it sits behind the record levels that we saw in what I'll call the pandemic years, by historical standards, it's a very large purchase market. And within that, we're seeing a tremendous opportunity to write new business. You know, we've guided through the course of this year that we expect to see a total private MI market of give or take $300 billion. And that remains the case. The first half of the year has come in generally in line with our expectations, and our outlook remains the same today. And so, you know, look, there are buyers out there who will transact. They need MI support. And over the long term, not just through 2023, but over the long term, there are a number of fundamental drivers of both purchase volume as well as MI demand that we see sustaining our market opportunity. And so we haven't seen a shift because of, you know, maybe the rise and increasing advantage that cash buyers have or penetration rates otherwise. It's a very large market that's coming in line with our expectations and it gives us, you know, increased confidence as we think about the long-term opportunity. Got it.

Okay. Very helpful. And thank you for reframing my question. I think that's a better way to explain it.

Thank you. Our next question will come from Mark Hughes with Truist.

You may now go ahead.

Yeah, thank you. Could you say again, what was the share buyback dollar amount in the second quarter, and then any insight on your pacing on the buyback as you think about the balance of the year and the next year?

Sure. Mark, it's Ravi. In Q2, we did about 26 million in share repurchases, slightly over 1 million of shares. Certainly, we're pleased with the execution. You know, with today's announcement, we have a little bit left in the 125 million share repurchase program. And so, when you combine that with the 200 million, you get to 228 million capacity. And we have through the end of 2025 to execute. As you know, we're not on a set schedule. It really depends on, you know, a number of factors, including, you know, market dynamics, how we feel about things in the market in particular, our stock price relative to the relative value in the shares. And so we plan to execute opportunistically. And, you know, we think about things going forward as the market progresses. We adjust accordingly.

Mark, I think, though, as a rough guide, we've got $228 million of capacity to be deployed over the next 10 quarters, and you could think about things on a roughly rateable basis through the end of the authorization period in December of 25, although I think Ravi's caveat that it's not going to be firmly regimented is absolutely the case.

Right, so maybe similar to Q2. And then on the expense ratio, Refreshment, are there any capital market expenses in that number? And then up a little bit sequentially, anything unusual in there? And how do you think it should trend going forward?

Mark, this is Robbie. Just to answer, there are two parts to your question there. From the capital market side, the XOLs typically are structured in a way where We don't pay specific fees that we outline like the way we do with ILNs. It's all rolled into the actual weighted average lifetime pre-tax costs that we quoted. And so that's separate. Maybe just to take the second part of your question, just on sort of quarter over quarter changes. You know, we're always focused on managing the business with discipline and efficiency. And, you know, we're pleased with the 21.8% expense ratio in Q2. you know, we always try to focus on the ratio and not the dollars. And we're really operating with the same footprint. We have the smallest headcount by far in the industry. And if you want to think about this quarter in particular, just to give some color for that, you know, in March, we award salary increases. Those could include, you know, merit, cost of living adjustments, promotions, and grant equity awards. And the Q2 increases and conferences Q1 were one of the components that drove the quarter-over-quarter change. And then another portion of that is just ordinary course projects. You know, the pickup we saw from Q1 to Q2 were just sort of ordinary course things that we do on a regular basis. We also saw NIW pickup, and NIW volume increased 31 percent quarter-over-quarter, and that increases our variable costs, and that also contributed to our quarter-quarter increases. So take all of that together. That's what drove the increase. You know, we've said this before in the past about our OpEx. We don't provide guidance. But, you know, we do expect OpEx from a dollars perspective to grow because we're always investing in people, in systems, in risk management strategies. And we grow. And so, you know, when you put all those together, you could see some uptick in Q4 and Q3 in terms of dollars of expenses.

Appreciate that detail. Thank you.

Next question will come from Bose George with KBW.

You may now go ahead.

Yes, good afternoon. Just wanted to go back to the discussion on macro, especially the improved expectations for home prices, you know, I guess over the course of this year. How is that sort of running through your thoughts on loss severities?

Look, it's a, I'd say we're certainly encouraged by the broad resiliency that we've seen in the macro environment and the housing market. For reserving purposes, though, we've always aimed to take what we would say is an appropriate but also appropriately conservative view. And so in practice, this means that we generally anchor more to downside scenarios when setting our position. And that remained the case in Q2. We did, in fact, though, factor for the resiliency that we've observed in the macro environment and housing market year to date. But we balanced that out. by the need to still maintain a conservative stance and reflect some of those risks that I talked about that we still see on the horizon. And so at June 30th, what that meant is that we moderated our expectations for economic strain and house price declines going forward in our reserving analysis, but we didn't fully remove what I would call a stress bias from our work.

Okay, that makes sense. Thanks. And then just switching to the ILN market, it looks like one of your peers is in the market with the deal. Is that market starting to look better in terms of potentially reentering for you guys?

You know, what I would say is that it certainly, you know, we're encouraged by seeing the ILN market rebound, you know, and certainly having one of our folks in the industry in the markets you know, the first since September. That's very exciting for us, and certainly we feel that it's nice to see the market healing a little bit. When we think about the state of the reinsurance markets, you know, and we're happy to do the most recent XOL, you know, we think capacity has been available broadly in the market. It's been constructive on constructive terms. In particular, our XOL, we had new reinsurers come into this latest XOL. And, you know, pricing and risk appetite has been wider than points in the past. And, you know, not every reinsurer is sort of back in the market. But, you know, we were happy to execute the deal. It's a competitive deal on attractive terms and certainly reflects an efficient form of PMIR's capital.

Yeah, those, these are all favorable developments, right? Our ability to continue executing on favorable terms in size and with speed in the traditional reinsurance markets, and we've noted a deal as well that you touched on, and that's a constructive one. To see a market that we have valued and we've accessed meaningfully in the past rebound constructively, it gives us more optionality and gives us additional outlets, which is valuable as we go forward.

Okay, great. Thanks a lot. This question will come from Jeffrey Dunn with Dowling.

You may now go ahead.

Thanks. Good afternoon. First question, was there an OCTO dividend up in the quarter?

Yeah, there was. We distributed $98 million of ordinary course dividends from NMIC, the lead operating subsidiary, up to the holding company during the quarter.

Okay. And then with respect to the assumptions in your loss provisioning, I think you were taking a very conservative stance on home prices. What are you now thinking as you look forward in your assumptions?

Yeah, so Jeff, we've never specifically outlined the underlying assumption, but suffice it to say, you know, while we have moderated our expectations for what strain might look like, we have still embedded our, you know, maintained our stress bias in the analysis.

Okay. And last question. I don't know the details on this, but a NAC just announced the formation of a Bermuda subsidiary to help with CRT business. Is that something that management and the board have ever discussed as a strategy for national or something that you think could be kind of within a three-year strategic plan for national?

We don't have anything immediately on the horizon. We'll be curious to learn more about the announced announcement. It is a path that some others in our sector have pursued. Right now, we find the best value of deploying our capital to be in support of our primary business. We continue to grow our customer franchise. We continue to grow you know, the opportunity that we're able to support, and that remains our focus for now.

Okay, thank you. Our next question will come from Eric Hagan with BTIG.

You may now go ahead.

Hey, thanks. How are we doing? First question here, I mean, how do you feel like homeowners are, you know, keeping up with inflation at this point, especially the borrowers with high, you know, DTI to begin with? I realize the macro data suggests one thing, but is there anything that maybe you're adjusting for at the portfolio level? And how do you maybe adjust for the risk that inflation stays higher for longer, if you will?

Yeah, Eric, it's a good question. Look, I think first and foremost, these are, among other items, ones that we account for from the standpoint of both pricing as well as actively managing the flow of risk and the mix of that risk coming into our portfolio. One of the risk markers that we consider, both on a standalone basis, but also how it interacts with other risk markers, is a borrower's debt-to-income ratio, which is essentially a household coverage metric. And we price for higher DTI borrowers in expectation that we'll see higher claims activity for those borrowers because their household finances are a bit more stretched. And we also actively manage the concentration of risk coming through. And so like all other risk markers, like all other risk factors that are out there, we manage for it in a few ways. We try to price for it for the risks that we're comfortable taking. We define what our risk appetite is and try to manage our mix such that we don't exceed that. And then we also pursue reinsurance consistently to make sure we don't have an outsized aggregation in the portfolio.

Yep, that's helpful. You know, what would you maybe identify at this point as a few of the stronger catalysts for first-time homebuyers at this point? Like I think you guys mentioned the expiration of student loan forbearance. Are you thinking that could have a bigger impact on the existing book or the forward opportunity as some borrowers might not be able to qualify, or just how are you guys thinking about that? Thanks.

Yeah, look, I'd say it's obviously pretty new. What I'd say broadly is we're watching it right now. particularly because we've got an election cycle coming up. I think the Biden administration has a clear vested interest in ensuring a smooth transition for borrowers and is taking steps to ensure that that transition is seamless. To that end, we've seen several important announcements, both from the administration as well as from the Department of Education, in the month or so since the Supreme Court ruling came out striking down the original student debt relief program. And so we'll see. It is possible that the upcoming resumption of payments will have an impact on certain borrowers in our portfolio who perhaps budgeted expecting more permanent relief. From an overall credit standpoint, though, we don't expect at this point that the restart of student loan payments will have a material impact on the performance of our portfolio. As for the potential impact on new business activity, I'd love to give you a specific answer, but admittedly, it's difficult to tell. On the one hand, you could see an even greater need for private MI support before with borrowers who now have to make additional monthly payments towards their student debt, not able to save as much for a down payment as previously hoped. But you could also see some pressure the other way with borrowers who were already stretched by higher rates and house prices now pushed to either look at less expensive homes, and it's the loan size that drives NIW, or perhaps being moved out of the buyer market entirely. So it's one we really need to monitor at this point before we know, you know, which way it will come out. Overall, though, we don't think it will have a consequential impact either on the credit performance of the portfolio or the new business opportunity.

Appreciate the good color. Thank you.

This concludes our question and answer session.

I would like to turn the conference back over to management for any closing remarks.

Well, thank you all again for joining us. We'll be participating in the Barclays Financial Services Conference on September 11th in New York and the Zellman Virtual Housing Summit on September 19th.

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.