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spk18: Ladies and gentlemen, thank you for standing by, and welcome to the MGIC Investment Corporation Second Quarter 2024 earnings call. At this time, all participants have been placed on mute to prevent any background noise. At the end of today's presentation, we'll have a question and answer session. To ask a question during the session, you will need to press star one one on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press star one one again. Please be advised that today's conference is being recorded. I'll now turn the conference over to Diana Higgins, head of investor relations. Please go ahead.
spk15: Thank you, Andrew. Good morning and welcome everyone. Thank you for your interest in MGIC. Joining me on the call today to discuss our results for the second quarter are Tim Mackey, chief executive officer, and Nathan Colson, chief financial officer. Our press release, which contains MGIC's second quarter financial results was issued yesterday and is available on our website at .mgic.com under newsroom, also includes additional information about our quarterly results that we will refer to during the call today. It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures. In addition, we posted on our website a quarterly supplement that contains information pertaining to our primary risk and force and other information you may find valuable. As a reminder, from time to time, we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website. Before getting started today, I want to remind everyone that during the call today, we may make comments about our expectations of 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 to differ materially from those discussed on the call today are contained in our 8K and 10Q filed yesterday also. If we make any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments. No one should rely on the fact that such findings or forward-looking statements are current at any time other than the time of this call or the issuance of our 8K and 10Q. With that, I now have the pleasure to turn the call over to Tim.
spk10: Thank you, Diana, and good morning, everyone. I am pleased to report that we had another solid quarter, and with that, an excellent first half of the year. We have been consistently generating mid-teen returns on equity while returning meaningful capital to our shareholders and creating long-term value for our stakeholders. Our results demonstrate the strength and flexibility of our business model, prudent risk management strategies, and focus on -the-cycle performance. Coupled with our ongoing commitment to serve our customers with quality offerings and solutions, we are able to help borrowers achieve the dream of affordable home ownership sooner. Now let's dive into the highlights of our financial results for the second quarter. For the quarter, we are net income of $204 million and generated an annualized 16% return on equity. Insurance and force, the main driver of revenue, end of the quarter at $292 billion, up slightly in the quarter. Our insurance and force has remained relatively flat over the past several quarters, consistent with what we expected. Annual persistency, end of the first quarter at 85%, down slightly in the quarter. We wrote $13.5 billion in new insurance, and new insurance we write continues to have strong credit characteristics. Our focus on prudent risk management strategies has enabled us to build and maintain a strong and balanced insurance portfolio. We continue to be very pleased with the overall credit quality performance of our portfolio. This credit performance continues to be a tailwind for our financial results. As we expected at the beginning of the year, this year's MI market is similar to last year's market. The mortgage origination industry continues to be hindered by the higher interest rate environment, resulting in affordability challenges and the supply of homes for sale being limited, creating pent-up demand. While the current supply-demand dynamic creates challenges for first-time home buyers, it continues to support home prices. Pent-up demand and the strong desire of the millennial and Gen Z populations to own homes are reasons to continue to be optimistic about the MI opportunities in the long run. Shifting to our capital activities, the strength and flexibility of our capital position in the quarter supported the repurchase of 7.6 million shares of common stock for $157 million and the payment of quarterly common stock dividend for a total of $31 million. This represents a 92% payout ratio for this quarter's net income. And as previously announced, in the quarter we paid a $350 million dividend from MGIC to the holding company, ending the quarter with $990 million of liquidity at the holding company. In addition, in April, the board authorized an additional $750 million share repurchase program, and last week the board authorized a 13% increase for our quarterly common stock dividend to 13 cents per share, marking four consecutive years of dividend increases with a compound annual growth rate of 21% over that period. Maintaining financial strength and flexibility are the cornerstones of our approach to capital management. While we prioritize prudent growth over capital return, opportunities to grow our insurance in force over the last two years have been constrained due to the size in the market. During that same time, operating results in credit performance have been exceptional leading to higher payout ratios in recent quarters. As part of our capital management, we assess current and expected future operating environments and the best options to display capital in order to maximize long-term shareholder value. We continually monitor our risk and capital position, and as long as credit performance is excellent and our risk position is stable or improving, our expected capital levels remain above our targets at both MGIC and the holding company, and payout ratios will remain elevated. Taking a step back to a long-term view provides perspective on our ability to grow while maintaining financial strength and managing our capital position. We've faced a wide range of operating environments over the last five years, and our dynamic approach to capital management, while always prioritizing financial strength and flexibility, has served our stakeholders well. Over the last five years, we have increased our insurance in force by $78 billion for 36%, from $214 billion to $292 billion. During that same period, we generated $3.4 billion in net income, $3.5 billion in operating cash flows, and gap equity increased by $1.1 billion after returning approximately $2 billion to shareholders through dividends and share repurchases. The combination of 97 million shares repurchased and the elimination of our legacy convertible debt has reduced diluted shares by 30%. The growth of our PMIRES excess from $1.1 billion to $2.4 billion during the same five-year period further demonstrates our commitment to maintaining robust financial strength. With that, let me turn it over to Nathan to get into more details on our financial results for the quarter.
spk11: Thanks, Tim, and good morning. As Tim mentioned, we had another quarter with excellent financial results. We earned net income of $0.77 per diluted share compared to $0.66 per diluted share last year. Adjusted net operating income was also $0.77 per diluted share compared to $0.68 last year. A detailed reconciliation of gap net income to adjusted net operating income can be found in our earnings release. The results for the second quarter were reflective of the strong credit performance we continue to experience, which again led to favorable loss reserve development and resulted in a negative loss ratio for this quarter. Our re-estimation of ultimate losses on prior delinquencies resulted in $67 million of favorable loss reserve development in the quarter. The favorable development this quarter primarily came from delinquency notices we received in 2022 and 2023. As cure rates on those delinquency notices continue to exceed our expectations, we have made favorable adjustments to our ultimate loss expectations. As a reminder, the delinquency notices we received during a quarter will include loans for many different book year ventures. We continue to maintain our initial ultimate loss assumptions related to new delinquencies from the most recent quarters. Our delinquency inventory decreased in the second quarter by 3%, with care slightly outpacing new notices. We continue to expect that the level of new delinquency notices may increase in the second half of 2024 due to seasonality and the large books from 2020 through 2022 being in what were historically higher loss emergence years. The enforced premium yield was 38.4 basis points in the quarter, flat quarter over quarter. As I mentioned on the last call, given our expectations for another year of higher persistency and a smaller MI market, we expect the enforced premium yield to remain relatively flat for the year. We remain disciplined in our approach to expense management and focused on operational efficiency. Operating expenses in the quarter were $55 million, down from $61 million last quarter and $57 million in the second quarter last year. We continue to expect the full year operating expenses will be in the range we previously provided of $215 million to $225 million. Our operating results, together with our strong balance sheet, enabled us to grow book value per share to $19.58, up 15% compared to a year ago, after returning $568 million of excess capital to shareholders through dividends and accretive share repurchases. While higher interest rates and the resulting lower valuations for fixed income investments continue to be a headwind for book value per share, higher interest rates have been a positive for the earnings potential of the investment portfolio. The book yield on the investment portfolio was .8% at the end of the second quarter, up 10 basis points in the quarter and up 55 basis points from a year ago. Net investment income was $61 million in the quarter, up $1.7 million sequentially and up $9 million from the second quarter last year. The increase in investment income has benefited total revenue, which was $305 million in the quarter, compared to $294 million last quarter and $291 million in the second quarter last year. During the second quarter, the reinvestment rates in our fixed income portfolio were above the book yield, and assuming a similar interest rate environment, we expect the book yield to continue to increase, but at a slower rate as the increase in book yield continues to narrow the difference between our book yield and reinvestment rates. As Tim discussed, our approach to capital management is dynamic and intended to maintain financial strength that positions us to achieve our objectives in varying macroeconomic environments. MGIC's capital structure includes $6 billion of balance sheet capital. Our well-established reinsurance program remains integral to our risk and capital management strategies. In addition to reducing the volatility of losses and stress scenarios, our reinsurance agreements provide diversification and flexibility to our sources of capital at attractive costs and reduce our PMIRES required assets by $2.2 billion at the end of the second quarter. We further bolstered our reinsurance program in the second quarter with an excess of loss agreement with a panel of highly rated reinsurers to cover most of our 2024 NIW. This reinsurance agreement complements the 30% quarter share agreement we had in place at the start of the year to cover the 2024 NIW. With that, let me turn it back over to Tim.
spk10: Thanks, Nathan. In closing, we had another successful quarter and an excellent first half of the year. We have been consistently generating meaningful returns for our shareholders. Our balance sheet and liquidity remain strong. I continue to be encouraged by the positive credit trends we are experiencing in our existing insurance portfolio, the favorable employment trends, and the resiliency of the housing market. As we navigate the second half of the year, we remain confident in our position or leadership in the market, as well as our ability to execute our business strategies. With that, Andrew, let's take questions.
spk18: Certainly. As a reminder, to ask a question, please press star one one on your telephone and wait for your name to be announced. To withdraw your question, please press star one one again. And our first question comes from the line of Soham Bansal with BTIG.
spk14: Hey guys, good morning. So I'm looking at slide five in your deck, which is a really helpful chart. And it looks like you've been able to sort of seed 40% of your PMIRED required assets to the reinsurance markets. And I mean, Nathan, you noted two billion of credit over time. Is there sort of a good way to think about, you know, sort of the optimal funding profile for you guys going forward?
spk11: Yes, Nathan, thanks for the question. You know, I think that chart really does show what, you know, how we really approach reinsurance, which is we try to concentrate our reinsurance buying on the most recent and future NIW. So if you look at that chart, you know, from 2020 and prior, you look at what we're covering, we're not covering very much of that. Feel very comfortable with that risk and try to concentrate the bill that we do have, like the excess of loss deals that we announced this quarter and previously the quarter share agreement covering our 2024 business. So, you know, I don't think overall, we don't target a specific funding level from reinsurance sampling in the overall book. Much more concentrated on trying to get reinsurance coverage on the most recent and future NIW. Okay,
spk14: and then Tim, just zooming out a little bit, credit performance just remains stellar. You know, it seems like the market, the MI market seems pretty disciplined on pricing and everything feels really good right now, but maybe just walk us through, you know, how you're planning for downside scenarios from here and just making sure that we're not getting too comfortable with the current state of things right now, thanks.
spk10: Yeah, so, Tim, appreciate the question. You know, it's something I think that we do every day. I mean, being an insurance company, we always have to stay focused on the downside and we think about executing in the market and we think about pricing. Our focus, quite frankly, is on the downside much more than it is on sort of our expectations because we think that's critical to being a healthy company over the long run and we think that served us well for the better part of six decades. So, it's something we're conscious of. We look for softening in any sort of credit. The good news is we haven't really seen it in our space, but it's something we have to remain very diligent on and be ready to adjust for. The good thing is with the tools we have these days, we can make moves really quickly from a pricing standpoint and we haven't been afraid to do that in the past.
spk18: Thank you. Thank you. One moment, please, for our next question. Our next question comes from the line of Boz George with KBW.
spk04: Hey, guys, good morning. Can we start this one on the new insurance written trends just with the companies that reported so far, you guys look like you're kind of the high end of the range. Any thoughts there on market share or just trends in the market?
spk10: Yeah, Boz, I think, you know, still one to report. I think we're coming in from a share perspective, probably where we would expect size of the market is pretty similar to what we would have thought. Again, I don't look at any one quarter as there's volatility that's gonna be there. Share can move a little bit here or there. So I think it's safe to say we gained a little bit, but it's mostly focused on, are we getting the right return for the capital we're deploying? You know, feel good about this quarter, just like we felt good about last quarter as well. You know, I think as we move through the year here, we have wide customer base that gives us an opportunity to really be able to, you know, get business when we wanna be able to win the business and deploy the capital at good returns. So again, I think, yeah, it's fair to say when we picked up a little bit this quarter, but I think we look over a longer period of time and sort of the amount of customers that we have activated and are able to do business with is another parameter as well.
spk04: Okay, makes sense, thank you. And then actually in terms of capital return, how do you sort of balance the share price in terms of buybacks versus dividends? I mean, the share price is up and it's safe, continues to do that. You know, does that play a role at some point in terms of the mix?
spk11: Yeah, both is Nathan. You know, certainly share price is an important consideration for us as we think about share repurchases. You know, the number one consideration is do we have, you know, excess capital at the holding company above the other things that we use capital at the holding company for? But recently the answer to that's been yes. So we have looked to increase payout ratios and have returned more capital to share repurchases. But you know, even in the month of July here, our repurchases were at a little less than 1.1 times tangible book. But I think even with the increase in the share price, we still think that we're at very attractive levels for long-term value accretion via share repurchases. So obviously the price has come up quite a bit in the sector and in our company. And you know, I think that's great news, we still think we're trading at very attractive levels for long-term value creation as well.
spk05: Okay, great, thanks.
spk18: Thank you. Thanks both. One moment please for our next question. And our next question comes from the line of Terry Ma with Barclays.
spk20: Hey, thank you, good morning. So is there any color you can provide on the characteristic or makeup of new notices this quarter and last quarter? The implied kind of provision per new notice was elevated compared to 2023,
spk13: so any color you can provide there? Yeah, Terry, it's Nathan. I mean, on new notices, we do have some
spk11: descriptive information in the portfolio supplement. I think the new notice claim rate that we used was the same as we have for the recent quarters at 7.5%. I think the biggest driver of maybe the provision on a per notice basis increasing then really has to do with the average exposure on new notices. And that I think is to be expected as we start to shift more towards notices from the most recent five or seven years and less from the say 2012 and prior years. Those have higher average loan balances, higher coverage levels, not higher risk amounts on a per loan basis. So I think that's really driving up the severity assumption is just the size of the policy, not an increase in the ratio that we have of kind of risk to reserve. We continue to target around 105% for new notices in terms of what we're reserving for compared to the risk
spk13: on those delinquent items. Got it, helpful, thank you. Thank you. Thank you. One moment please for our next question.
spk18: Our next question comes from the line of Doug Harter with UBS.
spk19: Thanks, can you talk about the pricing you're seeing and how that compares to kind of the enforced yield and therefore kind of what your expectation is over the coming 12 months?
spk13: Yeah, I think Doug, I can start and Nathan has
spk10: anything to add. Again, we don't talk too specific on pricing. I think if you look at sort of our yield on the portfolio the last few quarters, it's been really stable. And I think if you think about over the course of the year here, that's really gonna be dictated by the enforced portfolio any more than anything that comes down from a new business. So I think we can feel pretty confident saying that we expect that's gonna be relatively stable over the remainder of the year, which I think we said coming into the year we felt that was the case. So again, I think from an overall market perspective we feel really comfortable with the price we're able to get on the capital we're deploying. It's a good environment. Again, we always have to be careful about downside scenarios, but we feel that we're able to get really good
spk13: return for the capital we're deploying in this current market. Thank you. Sure. Thank you. One moment please for our next question.
spk18: Our next question comes from the line of Mahir Bhatia with Bank of America.
spk02: Hi, good morning and thank you for taking my questions. I wanted to start with the cure rate a little bit. It's been pretty elevated the last couple of quarters, obviously, strong housing credit backdrop, but what I was really curious about and I'm trying to understand is what would need to change
spk12: in the backdrop
spk02: for that cure activity to weaken as you think about it and like any thoughts on where the default rate could trend here over the next few quarters, does cure activity continue to be stronger than new notices or will the uptick in new notices kind of push total defaults maybe a little bit up?
spk13: Here's Nathan,
spk11: I'll start on that at least. And I think what we've observed over the last two years is I think a return of some level of seasonality. So the first and second quarters are historically seasonally good credit quarters both from a number of new notices, but also cure activity. So what we do expect, and we saw this last year, we do expect some softening of that in the second half of the year. So while we had declines in the first and second quarter in the delinquency inventory, really driven by cures outpacing new notices, we don't expect that to happen in this second half of the year. But in terms of broader trends, things that could drive not seasonally adjusted, I guess we'll say, cure activity, I think that has to do with the general macroeconomic backdrop that we operate in. So unemployment has remained low, wage growth has been strong, home prices have continued to increase. Those things are all tailwinds to credit performance for us. And if one or more of those started to come under pressure, I think that could impact not only the level of new notices, but also how quickly they're curing, and ultimately how many cure out and how many result in claims. But the experience that we've had over the last several years has been quite favorable because all of those key factors, whether it's macroeconomics, interest rates, or home prices have all been kind of working in a very favorable direction for credit performance.
spk02: Okay, maybe switching to capital returns. I think you talked about them staying elevated in this operating environment for a little bit. Maybe to put a finer point on it, is this %-ish payout ratio the right way to think about it that gives you enough, the 10% that you store is enough to fund the growth to the extent you're seeing that?
spk11: I mean, here, I wouldn't target a specific payout ratio in any one quarter. I think like Tim mentioned in the opening comments, for us, it really starts with making sure we have enough capital at the operating company to support the risk that we have on the books and the risk that we wanna write and be able to do that in a variety of operating environments. From there, we've been above our target levels at the operating company, which has led us to pay dividends, larger dividends over the last several years up to the holding company that has enabled this capital return that we've seen. But it doesn't start with a target payout ratio for us, it really starts ground up from what's the right level of capital for us to have at the operating company. So, there's a lot of ifs here, right? But if the environment remains similar to what we've experienced, which is excellent credit performance and not a lot of growth, I think those are the conditions that lead to the higher payout ratios.
spk02: Got it, so that's helpful. And then just my last question, I just wanted to follow up a little bit on both this question about share. Really, my question is just pretty straightforward. Was there anything episodic or unusual about the second quarter that maybe drove the uptick for you guys being a little bit more than some of the peers who reported so far? Like, did you pick up any bulk business, anything specific that you would point to in the second quarter? Here, no, I appreciate that.
spk10: No, no bulk type deals for us. It's all sort of winning the business every day. I think where our share is gonna end this quarter is probably more representative where I think we normally would be when you think about sort of our broad customer base. It's not probably even a little bit higher. So it's probably more a reflection of being back in sort of closer to where we should be as opposed to maybe in Q1, but no bulk deals this quarter, anything like that's been inflated that it's just, it's winning the business every day.
spk03: Okay, thank you. Thanks for taking my questions.
spk18: Thank you. And our next question comes from the line of Jeffrey Dunn with Dowling.
spk06: Thanks, good morning.
spk09: I know it's still early in the seasoning pattern, but you are getting a growing amount of new notices coming from the 22, 23 books. Any quality of commentary you can provide with respect to how those notices are performing with the lower HPA
spk07: relative
spk09: to the
spk07: bigger 2021 books? Jeff
spk13: is Nathan, I'll
spk11: take that one. I mean, we do look at vintage level performance and how things are looking both from a transition to notice standpoint, but also curing out. And I think the cure activity that we've seen, and we kind of look at this on a monthly basis. So one month cure rates, two months, three months, four months, we're not seeing a lot of changes in the patterns that we've seen. And so it does feel like there should be some differential performance in some of those vintages. I think we do see 2022, which especially the back half of the year, kind of somewhat elevated compared to say the 21 or 23 vintages. But I mean, this is very, very slight. And then the grand scheme of things, not a big driver we think of ultimate losses because cure activity has been so good. And then we try to ground a lot of things in looking back to 2009, which was a vintage that incurred some stress, ultimately fully developed out into a sub 20 loss ratio. And the delinquency patterns that we're seeing relative to 2009 are really favorable for more recent vintages and post delinquency cure activity has been so strong post COVID that actual loss ratios on more recent vintages are running much below that level. So I think it's definitely something that we keep an eye on and we'll keep an eye on, but I don't have a lot for you on that specifically right now, just because we're not seeing much differential in terms of post delinquency cure performance when we look at it at a cohort level.
spk09: Okay, as far as embedded equity, I think some companies and maybe Magic has as well provided kind of the embedded equity on average for the overall portfolio. I think the latest HPN number was over 5%. Is it fair to speculate that there's on average maybe five, 6% embedded equity in the 23 book and more so on the 22 book?
spk08: Or is that too general?
spk11: I think that's fair. I think that's a fair way to look at it. Again, one of the reasons that we don't disclose that and also don't do it for delinquent loans is those are averages over large geographic areas. And there's certainly homes that experience better than average appreciation, but there's also some that experience lower than average appreciation or even depreciation, even if the overall market is up 5%. And in our business of ensuring your really kind of mortgage credit tail risk, we're most focused on the worst three to five to 7% of performance, not the average. So we see those same numbers when we run that for our book, but I think we're kind of more focused on the full distribution of outcomes. But if you wanted to look at the full 2023 book, using either regional or kind of localized home prices or national home price, I think you would see those same, that kind of same dynamic that you're describing. But I think for us, it's more focused on the kind of full distribution and really the worst 10% of the distribution because that's really what we're there to cover, not kind of the average loan.
spk13: Gotcha, thank you.
spk18: Thank you, there are no further questions. I will now turn the call back over to management for closing remarks.
spk10: Thank you, Andrew. I wanna thank everyone for your interest in NGIP. We will be participating in the Barclays Financial Services Conference and the Zelman Housing Summit in September. Have a great rest of your week and summer. Thanks everyone.
spk18: Ladies and gentlemen, this concludes today's conference call. Thank you for participating and you may now
spk13: disconnect.
spk00: Thank you.
spk01: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you.
spk18: Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Thank you. Music Ladies and gentlemen, thank you for standing by and welcome to the MGIC Investment Corporation Second Quarter 2024 earnings call. At this time, all participants have been placed on mute to prevent any background noise. At the end of today's presentation, we'll have a question and answer session. To ask a question during the session, you will need to press star 1-1 on your telephone. You will then hear an automated message advising that your hand has been raised. To withdraw your question, please press star 1-1 again. Please be advised that today's conference is being recorded. I'll now turn the conference over to Diana Higgins, Head of Investor Relations. Please go ahead.
spk15: Thank you, Andrew. Good morning and welcome everyone. Thank you for your interest in MGIC. Joining me on the call today to discuss our results for the second quarter are Tim Mackey, Chief Executive Officer, and Nathan Colson, Chief Financial Officer. Our price release, which contains MGIC's second quarter financial results, was issued yesterday and is available on our website at .mgic.com under newsroom, also includes additional information about our quarterly results that we will refer to during the call today. It also includes a reconciliation of non-GAAP financial measures to their most comparable GAAP measures. In addition, we posted on our website a quarterly supplement that contains information pertaining to our primary risk and force and other information you may find valuable. As a reminder, from time to time, we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website. Before getting started today, I want to remind everyone that during the call today, we may make comments about our expectations of 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 to differ materially from those discussed on the call today are contained in our 8K and 10Q filed yesterday also. If we make any forward-looking statements, we are not undertaking an obligation to update those statements in the future in light of subsequent developments. No one should rely on the fact that such findings or forward-looking statements are current at any time other than the time of this call or the issuance of our 8K and 10Q. With that, I now have the pleasure to turn the call over to Tim.
spk10: Thank you, Diana, and good morning, everyone. I am pleased to report that we had another solid quarter, and with that, an excellent first half of the year. We have been consistently generating mid-teen returns on equity, while returning meaningful capital to our shareholders and creating long-term value for our stakeholders. Our results demonstrate the strength and flexibility of our business model, prudent risk management strategies, and focus on -the-cycle performance. Coupled with our ongoing commitment to serve our customers with quality offerings and solutions, we are able to help borrowers achieve the dream of affordable homeownership sooner. Now let's dive into the highlights of our financial results for the second quarter. For the quarter, we earned a net income of $204 million and generated an annualized 16% return on equity. Insurance and force, the main driver of revenue, ended the quarter at $292 billion, up slightly in the quarter. Our insurance and force has remained relatively flat over the past several quarters, consistent with what we expected. Annual persistency ended the first quarter at 85%, down slightly in the quarter. We wrote $13.5 billion in new insurance, and new insurance we write continues to have strong credit characteristics. Our focus on prudent risk management strategies has enabled us to build and maintain a strong and balanced insurance portfolio. We continue to be very pleased with the overall credit quality performance of our portfolio. This credit performance continues to be a tailwind for our financial results. As we expected at the beginning of the year, this year's MI market is similar to last year's market. The mortgage origination industry continues to be hindered by higher interest rate environment, resulting in affordability challenges and the supply of homes for sale being limited, creating pent-up demand. While the current supply-demand dynamic creates challenges for first-time home buyers, it continues to support home prices. Pent-up demand and the strong desire of the millennial and Gen Z populations to own homes are reasons to continue to be optimistic about the MI opportunities in the long run. Shifting to our capital activities, the strength and flexibility of our capital position in the quarter supported the repurchase of 7.6 million shares of common stock for $157 million and the payment of quarterly common stock dividend for a total of $31 million. This represents a 92% payout ratio for this quarter's net income. And as previously announced, in the quarter we paid a $350 million dividend from MGIC to the holding company, ending the quarter with $990 million of liquidity at the holding company. In addition, in April the board authorized an additional $750 million share repurchase program and last week the board authorized a 13% increase to our quarterly common stock dividend to $0.13 per share, marking four consecutive years of dividend increases with a compound annual growth rate of 21% over that period. Maintaining financial strength and flexibility are the cornerstones of our approach to capital management. While we prioritize prudent growth over capital return, opportunities to grow our insurance in force over the last two years have been constrained due to the size of the market. During that same time, operating results and credit performance have been exceptional leading to higher payout ratios in recent quarters. As part of our capital management, we assess current and expected future operating environments and the best options to supply capital in order to maximize long-term shareholder value. We continually monitor our risk and capital position and as long as credit performance is excellent and our risk position is stable or improving, our expected capital levels will remain above our targets at both MGIC and the holding company and payout ratios will remain elevated. Taking a step back to a long-term view provides perspective on our ability to grow while maintaining financial strength and managing our capital position. We faced a wide range of operating environments over the last five years and our dynamic approach to capital management while always prioritizing financial strength and capital growth. Our financial stability has served our stakeholders well. Over the last five years, we have increased our insurance in force by $78 billion for 36%, from $214 billion to $292 billion. During that same period, we generated $3.4 billion in net income, $3.5 billion in operating cash flows, and gap equity increased by $1.1 billion after returning approximately $2 billion to shareholders through dividends and share repurchases. The combination of 97 million shares repurchased and the elimination of our legacy convertible debt has reduced diluted shares by 30%. The growth of our PMAR is accessed from $1.1 billion to $2.4 billion during the same five-year period further demonstrates our commitment to maintaining robust financial strength. With that, let me turn it over to Nathan to get into more details on our financial results for quarter.
spk11: Thanks, Tim. Good morning. As Tim mentioned, we had another quarter with excellent financial results. We earned net income of $0.77 per diluted share compared to $0.66 per diluted share last year. Adjusted net operating income was also $0.77 per diluted share compared to $0.68 last year. A detailed reconciliation of gap net income to adjusted net operating income can be found in our earnings release. The results for the second quarter were reflective of the strong credit performance we continue to experience, which again led to favorable loss reserve development and resulted in a negative loss ratio for this quarter. Our re-estimation of ultimate losses on prior delinquencies resulted in $67 million of favorable loss reserve development in the quarter. The favorable development this quarter primarily came from delinquency notices we received in 2022 and 2023. As cure rates on those delinquency notices continue to exceed our expectations, we have made favorable adjustments to our ultimate loss expectations. As a reminder, the delinquency notices we received during a quarter will include loans from many different book-year ventures. We continue to maintain our initial ultimate loss assumptions related to new delinquencies from the most recent quarters. Our delinquency inventory decreased in the second quarter by 3%, with care slightly outpacing new notices. We continue to expect that the level of new delinquency notices may increase in the second half of 2024 due to seasonality and the large books from 2020 through 2022 being in what were historically higher loss emergence years. The enforced premium yield was 38.4 basis points in the quarter, flag quarter over quarter. As I mentioned on the last call, given our expectations for another year of higher persistency and a smaller MI market, we expect the enforced premium yield to remain relatively flat for the year. We remain disciplined in our approach to expense management and focused on operational efficiency. Operating expenses in the quarter were $55 million, down from $1.5 million from $61 million last quarter and $57 million in the second quarter last year. We continue to expect the full-year operating expenses will be in the range we previously provided of $215 million to $225 million. Our operating results, together with our strong balance sheet, enabled us to grow book value per share to $19.58, up 15% compared to a year ago after returning $568 million excess capital to shareholders through dividends and accretive share repurchases. While higher interest rates and the resulting lower valuations for fixed income investments continue to be a headwind for book value per share, higher interest rates have been a positive for the earnings potential of the investment portfolio. The book yield on the investment portfolio was .8% at the end of the second quarter, up 10 basis points in the quarter and up 55 basis points a year ago. Net investment income was $61 million in the quarter, up $1.7 million sequentially, and up $9 million from the second quarter last year. The increase in investment income has benefited total revenue, which was $305 million in the quarter compared to $294 million last quarter and $291 million in the second quarter last year. During the second quarter, the reinvestment rates on our fixed income portfolio were above the book yield. Assuming a similar interest rate environment, we expect the book yield to continue to increase, but at a slower rate as the increase in book yield continues to narrow the difference between our book yield and reinvestment rates. As Tim discussed, our approach to capital management is dynamic and intended to maintain financial strength that positions us to achieve our objectives in varying macroeconomic environments. MGIC's capital structure includes $6 billion of balance sheet capital. Our well-established reinsurance program remains integral to our risk and capital management strategies. In addition to reducing the volatility of losses and stress scenarios, our reinsurance agreements provide diversification and flexibility to our sources of capital at attractive costs and reduce our PMIRES required assets by $2.2 billion at the end of the second quarter. We further bolstered our reinsurance program in the second quarter with an excess of loss agreement with a panel of highly rated reinsurers to cover most of our 2024 NIW. This reinsurance agreement complements the 30% quarter share agreement we had in place at the start of the year to cover the 2024 NIW. With that, let me turn it back over to Tim.
spk10: Tim Weiss Thanks, Nathan. In closing, we had another successful quarter and an excellent first half of the year. We have been consistently generating meaningful returns for our shareholders, and our balance sheet and liquidity remain strong. I continue to be encouraged by the positive credit trends we are experiencing in our existing insurance portfolio, the favorable employment trends, and the resiliency of the housing market. As we navigate the second half of the year, we remain confident in our position and leadership in the market, as well as our ability to execute our business strategies. With that, Andrew, let's take questions.
spk18: Andrew C. Certainly. As a reminder, to ask a question, please press star 11 on your telephone and wait for your name to be announced. To withdraw your question, please press star 11 again. Our first question comes from the line of Soham Bonsal with BTIG.
spk14: Soham Bonsal Hey, guys. Good morning. I'm looking at slide 5 in your deck, which is a really helpful chart. It looks like you've been able to seed 40% of your PMIR required assets to the reinsurance markets. I mean, Nathan, you noted $2 billion of credit over time. Is there a good way to think about the optimal funding profile for you guys going forward?
spk11: Yes, Nathan. Thanks for the question. I think that chart really does show how we really approach reinsurance, which is we try to concentrate our reinsurance buying on the most recent and future NIW. If you look at that chart from 2020 and prior, when you look at what we're covering, we're not covering very much of that. We feel very comfortable with that risk and try to concentrate the bill that we do have, like the excess of loss deal that we announced this quarter and previously the quarter share agreement covering our 2024 business. So I don't think overall we don't target a specific funding level from reinsurance sampling in the overall book. Much more concentrated on trying to get reinsurance coverage on the most recent and future NIW.
spk14: Okay. And then Tim, just zooming out a little bit, credit performance just remains stellar. It seems like the market, the MI market seems pretty disciplined on pricing and everything feels really good right now. But maybe just walk us through how you're planning for downsides and errors from here and just making sure that we're not getting too comfortable with our current state of things right now.
spk10: Thanks. Yeah, it's Tom. It's Tim. Appreciate the question. You know, it's something I think that we do every day. I mean, being an insurance company, we always have to stay focused on the downside. And we think about executing in the market and we think about pricing. Our focus, quite frankly, is on the downside much more than it is on sort of expectations. We think that's critical to being a healthy company over the long run. And we think that served us well for the better part of six decades. So it's something we're conscious of. We look for softening in any sort of credit. The good news is we haven't really seen it in our space. But it's something we have to remain very diligent on and be ready to adjust for. The good thing is with the tools we have these days, we can make moves really quickly from a pricing standpoint. And we haven't been afraid to do that in the past. Thank you.
spk18: Thank you. One moment, please, for our next question. Our next question comes from the line of Boz George with KBW.
spk04: Hey, guys. Good morning. Can we start this one on the new insurance written trends? Just with the companies that reported so far, you guys look like you're kind of behind in the range. Any trends in the market?
spk10: I think we're still on the report. I think we're coming in from a share perspective, probably where we would expect size in the market is pretty similar to what we would have thought. Again, I don't look at any one quarter as there's volatility that's going to be there. Share can move a little bit here or there. So I think it's safe to say we gained a little bit. But it's mostly focused on are we getting the right return for the capital we're deploying feel good about this quarter, just like we felt good about last quarter as well. I think as we move through the year here, we have wide customer base that gives us an opportunity to really be able to get business when we want to be able to win the business and deploy the capital at good returns. So again, I think it's fair to say we may have picked up a little bit this quarter. But I think we look over a longer period of time and sort of the amount of customers we have activated and are able to do business with is another barometer as well.
spk04: Okay, makes sense. Thank you. And then actually in terms of capital return, how do you sort of balance the share price in terms of buybacks versus dividends? I mean, the share price is up and if the state continues to do that, does that play a role at some point in terms of the mix?
spk11: Yeah, both Nathan, certainly share price is an important consideration for us as we think about share repurchases. The number one consideration is do we have excess capital at the holding company above the other things that we use capital at the holding company for? But recently, the answer that's been yes, we have looked to increase payout ratios and have returned more capital to share repurchases. But even in the month of July here, our repurchases were at a little less than 1.1 times tangible book. I think even with the increase in the share price, we still think that we're at very attractive levels for long-term value accretion via share repurchases. So obviously, the price has come up quite a bit in the sector and in our company. And I think that's great news, but we still think we're trading at very attractive levels for long-term value creation as well.
spk05: Okay, great. Thanks.
spk18: Thank you. Thanks, fellas. One moment, please, for our next question. Our next question comes from the line of Terry Ma with Barclays. Hey,
spk20: thank you. Good morning. Is there any color you can provide on the characteristic or makeup of new notices this quarter and last quarter? The implied kind of provision per new notice was elevated compared to 2023.
spk13: So any color you can provide there? Terry, it's Nathan. I mean, on new notices, we do have some
spk11: descriptive information in the portfolio supplement. I think the new notice claim rate that we used was the same as we have for the recent quarters at 7.5%. I think the biggest driver of maybe the provision on a per-notice basis increasing then really has to do with the average exposure on new notices. And that, I think, is to be expected as we start to shift more towards notices from the most recent five or seven years and less from, say, 2012 and prior years. Those have higher average loan balances, higher coverage levels, higher risk amounts on a per-loan basis. So I think that's really driving up the severity assumption is just the size of the policy, not an increase in the ratio that we have of kind of risk to reserve. We continue to target around 105% for new notices in terms of what we're reserving for compared to the risk
spk13: on those delinquent items. Got it. Helpful. Thank you. Thank you. One moment, please, for our next question. Our
spk18: next question comes from the line of Doug Harter with UBS.
spk19: Thanks. Can you talk about the pricing you're seeing and how that compares to the enforced yield and therefore what your expectation is over the coming 12 months?
spk13: I think, Doug, I can start and Nathan has anything
spk10: to add. Again, we don't talk too specific on pricing. I think if you look at our yields on the portfolio the last few quarters, it's been really stable. And I think if you think about it over the course of the year here, that's really going to be dictated by the enforced portfolio any more than anything that comes down from a new business. So I think we can feel pretty confident saying that we expect that's going to be relatively stable over the remainder of the year, which I think we said coming into the year, we felt that was the case. So again, I think from an overall market perspective, we feel really comfortable with the price we're able to get on the capital we're deploying. It's a good environment. Again, we always have to be careful about downside scenarios, but we feel that we're able to get really good return
spk13: for the capital we're deploying in this current market. Thank you. Sure. Thank you. One moment, please, for our next question.
spk18: Our next question comes from the line of Mahir Bhatia with Bank of America.
spk02: Hi, good morning. Good morning. And thank you for taking my questions. I wanted to start with the cure rate a little bit. It's been pretty elevated the last couple of quarters, obviously, you know, strong housing credit backdrop. But what I was really curious about, and I'm trying to understand is what would need to change
spk12: in the backdrop
spk02: for that cure activity to weaken as you think about it? Like, you know, any thoughts on where the default rate could trend here over the next few quarters? Does cure activity continue to be stronger than new notices, or will the uptick in new notices kind of push total defaults maybe a little bit up?
spk13: Here's Nathan.
spk11: I'll start on that at least. And I think what we've observed over the last two years is I think a return of some level of seasonality. So the first and second quarters are historically seasonally good credit quarters, both from a number of new notices, but also cure activity. So what we do expect, and we saw this last year, you know, we do expect some softening of that in the second half of the year. So while we had declines in the first and second quarter in the delinquency inventory really driven by cures outpacing new notices, we don't expect that to happen in the second half of the year. But you know, kind of in terms of broader trends, things that could drive, you know, not kind of seasonally adjusted, I guess we'll say, cure activity. I think that has to do with the general macroeconomic backdrop that we operate in. So unemployment has remained low, wage growth has been strong, home prices have continued to increase. Those things are all tailwinds to credit performance for us. And if one or more of those started to come under pressure, I think that could impact not only the level of new notices, but also how quickly they're curing and ultimately how many cure out, how many result in claims. But the experience that we've had over the last several years has been quite favorable because all of those key factors, whether it's macroeconomics, interest rates, or home prices have all been kind of working in a very favorable direction for credit performance.
spk02: Okay. Maybe switching to capital returns. I think you talked about them staying elevated in this operating environment for a little bit. Maybe to put a finer point on it, is this %-ish payout ratio the right way to think about it that gives you enough, you know, the 10% that you store is enough to fund the growth to the extent you're seeing that?
spk11: Let me hear. I wouldn't target a specific payout ratio in any one quarter. You know, I think like Tim mentioned in the opening comments, for us, it really starts with making sure we have enough capital at the operating company to support the risk that we have on the books and the risk that we want to write and be able to do that in a variety of operating environments. You know, from there, we've been above our target levels at the operating company, which has led us to pay dividends, larger dividends over the last several years up to the holding company that has enabled this capital return that we've seen. But, you know, it doesn't start with a target payout ratio. For us, it really starts ground up from, you know, what's the right level of capital for us to have at the operating company? So, you know, there's a lot of ifs here, right? But if the environment remains, you know, similar to what we've experienced, which is excellent credit performance and not a lot of growth, I think those are the conditions that lead to the higher payout ratios.
spk02: Got it. That's helpful. And then just my last question. I just wanted to follow up a little bit on both this question about share. Really, my question is just pretty straightforward. Was there anything episodic or unusual about the second quarter that maybe drove the uptick for you guys being a little bit more than some of the peers who reported so far? Like, did you any bulk business, anything specific that you would point to in the second quarter? No, I appreciate that.
spk10: No, no bulk type deals for us. It's all sort of winning the business every day. I think, you know, I think where our share is going to end this quarter is probably more representative where I think we normally would be when you think about sort of our broad customer base. It's not probably even a little bit higher. So it's probably more reflection of being back, you know, in sort of where we closer to where we should be as opposed to maybe in Q1. But no buck deals this quarter, anything like that's in play to that. It's just it's winning the business every day.
spk03: Okay, thank you. Thanks for taking my questions.
spk18: Thank you. Our next question comes from the line of Jeffrey Dunn with Dowling.
spk06: Thanks. Good morning.
spk09: I know it's still early in the seasoning pattern, but you are getting a growing amount of new notices coming from the 22, 23 books. Any quality of commentary you can provide with respect to how those notices are performing with the lower HPA relative to the
spk07: bigger 2021 books? Good.
spk13: Jeff is Nathan. I'll
spk11: take that one. I mean, we do look at, you know, vintage level performance and how things are looking both from a, you know, transition to notice standpoint, but also curing out. And I think the cure activity that we've seen, and we kind of look at this on a monthly basis. So one month cure rates, two months, three months, four months, we're not seeing a lot of changes in the patterns that we've seen. So it does feel like there should be some, you know, differential performance in
spk17: some
spk11: of those vintages. I think we do see 2022, which especially the back half of the year, you know, kind of somewhat elevated compared to, say, the 21 or 23 vintages. But I mean, this is, you know, very, very slight. And then the grand scheme of things and not a big driver, we think of ultimate losses because cure activity has been so good. And then, you know, we try to ground a lot of things in looking back to 2009, which was a vintage that, you know, incurred some stress, ultimately, you know, fully developed out into a sub 20 loss ratio. And the delinquency patterns that we're seeing relative to 2009 are really favorable for more recent vintages and post delinquency cure activity has been so strong post COVID that, you know, actual loss ratios on more recent vintages are running much below that level. So I think it's definitely something that we keep an eye on and we'll keep an eye on. But I don't have a lot for you on that specifically right now, just because we're not seeing much differential in terms of, you know, post delinquency cure performance when we look at it at a cohort level.
spk09: Okay. As far as embedded equity, I think some companies and maybe Magic has as well provided kind of the embedded equity on average for the overall portfolio. I think the latest HPAM number was over 5%. Is it fair to speculate that there's on average maybe 5%, 6% embedded equity in the 23 book and more so on the 22 book?
spk08: Or is that too general?
spk11: Well, I think that's fair. I think that's a fair way to look at it. You know, again, one of the reasons that we don't, you know, disclose that and also, you know, don't do it for delinquent loans is those are averages over large geographic areas. And, you know, there's certainly homes that experience better than average appreciation, but there's also some that experience lower than average appreciation or even depreciation, even if the overall market is up 5%. And in our business of ensuring your really kind of mortgage credit tail risk, you know, we're most focused on the worst 3 to 5 to 7% of performance, not the average. So, you know, we see those same numbers when we look at the full 20-23 book. We're kind of more focused on the full distribution of outcomes. But if you wanted to look at the full 20-23 book, you know, using either regional or kind of localized home prices or national home price, I think you would see those same, you know, that kind of same dynamic that you're describing. But I think for us, it's, you know, it's more focused on the kind of full distribution and really the worst 10% of the distribution because that's really what we're there to cover, not kind of the average loan.
spk13: Gotcha. Thank you.
spk18: Thank you. There are no further questions. I will now turn the call back over to management for closing remarks.
spk10: Thank you, Andrew. I want to thank everyone for your interest in MGIC. We'll be participating in the Barclays Financial Services Conference and the Zellman Housing Summit in September. Have a great rest of your week and summer. Thanks, everyone.
spk18: Ladies and gentlemen, this concludes today's conference call. Thank you for participating, and you may now disconnect.
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