NMI Holdings Inc (NMIH) 2014 Q3 法說會逐字稿

Good day, ladies and gentlemen. Welcome to the NMI Holdings Incorporated third-quarter 2014 earnings conference call. (Operator Instructions). As a reminder, this conference is being recorded. I would now like to turn the call over to Mr. Jay Sherwood, Chief Financial Officer. Sir, you have the floor.

Thank you, Andrew. Good afternoon and thank you for joining us today and for your interest in NMI Holdings. I'm Jay Sherwood, the Chief Financial Officer of NMI. Joining me on the call today to discuss the results for the third quarter of 2014 is Brad Shuster, the Company's Chairman and Chief Executive Officer.

I want to remind all participants that today's earnings release, which may be accessed on NMI's website under the Investors tab, includes additional information about the Company's quarterly results, which we may refer to during the call. During the course of the 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 those factors that could cause actual results or trends to differ materially from those discussed on the call can be found on our website under the Investors tab or through our regulatory filings with the SEC. If and to the extent the Company makes forward-looking statements, we do not undertake an obligation to update those statements in the future in light of subsequent development. Further, no interested parties should rely on the fact that the guidance of forward-looking statements is current at any time other than the time of this call.

I'll now make some brief comments related to our financial information and then turn the call over to Brad. For the third quarter of 2014, the Company reported a net loss of $11 million, or $0.19 per share, versus a net loss of $12.9 million, or $0.22 per share for the quarter ended June 30, 2014. In the third quarter of 2014, the Company had primary new insurance written of $975 million compared to $430 million of primary new insurance written in the second quarter of 2014. As of September 30, 2014, the Company had primary insurance in force of $1.8 billion compared to $940 million at June 30, 2014.

Pool insurance in force at the end of the third quarter was $4.8 billion compared to $4.9 billion at the end of the previous quarter. As of September 30, 2014, the Company had primary risk in force of $436 million compared to $220 million at June 30, 2014. Pool risk in force at September 30, 2014 and June 30, 2014 was $93 million.

For the third quarter of 2014, the Company had premiums written and premiums earned of $9.7 million and $3.9 million respectively. This compares to $5.1 million written and $2.1 million earned in the prior quarter. Investment income in the third quarter was $1.3 million compared to $1.5 million in the second quarter. For the third quarter of 2014, the Company had total expenses of $17.9 million compared to $18.7 million in the second quarter. Total net operating expenses for the quarter were down primarily due to lower litigation defense costs as a result of the settlement of the PMI litigation in the second quarter.

Turning to the balance sheet at September 30, 2014, the Company had approximately $446 million of cash and investments and book equity of $434.4 million or $7.44 in book value per share. This book value excludes any benefit attributable to the Company's net deferred tax asset and with that, I'll turn it over to Brad.

Thank you, Jay. National MI saw tremendous growth in our customer base and in our new insurance written and risk in force during the third quarter. Customers generating NIW within the third quarter grew to 180, nearly doubling from the 94 customers generating NIW within the second quarter. The number of customers with whom we have approved master policies has increased to 664 at the end of the third quarter, up from 565 at the end of the second quarter, which we believe is a leading indicator of our ability to activate new customer accounts and convert them into ongoing generators of NIW in the future.

We continue to increase our footprint in the marketplace and continue to acquire new customers while strengthening existing customer relationships. We also continue to see a shift in MI business from the FHA to the private mortgage insurers and estimate that the private mortgage insurance marketshare without HARP is now above 40%, up from 15% at its low in 2010 during the economic crisis.

Turning to the draft PMIERS released by the FHFA during the summer, we provided our comments on the proposed requirements to the FHFA ahead of the September 8 deadline for public comments. In general, we are very supportive of the framework and we believe that PMIERS when finalized will provide for a strong and financially stable mortgage insurance industry.

Our comments included a recommendation to include future earned premiums from all book years in the calculation of available assets and we also requested clarification in the PMIERS as to how insured business for particular book years will be treated as the book ages as we believe the charges reflected in the risk-based model should recognize the lower probability of default as vintages age. We expect that the FHFA will release a final version of these draft PMIERS by the end of mid-2015. If the PMIERS were implemented today, we believe that based on the industry's mix of primary mortgage insurance written this year and pricing from our rate card, that we would be able to produce a return on assets in the mid-teens.

We are encouraged by our third-quarter results and the positive response in the marketplace to our differentiated products, superior coverage terms and capital strength. We believe national MI's innovative leadership in the MI industry and the Company's success in offering twelve-month rescission relief is favorably changing the way customers manage their risk and with that, I will open it up to your questions.

(Operator Instructions). Steve Stelmach, FBR.

Hey, good afternoon, guys and congrats on the progress. Brad, you talked about the number of customers you have is growing. How should we think about the relative marketshare opportunity, harvesting your existing relationships, your existing customers versus signing up new customers? Obviously they are both sort of low-hanging fruit for you guys, but what's the more meaningful channel?

Well, Steve, we look at both. We think it's important to continue to expand the total size of our pipeline we have into the marketplace and that's the total number of customer relationships that we have and we're always looking to grow that total number and we're seeing very good growth and very good takeup in that regard. But then once we get that first policy from a customer, we're extremely focused on deepening the relationship and increasing the allocation and making sure that that first loan turns into a very beneficial long-term relationship for us. So we focus on both.

Okay. And then in regard to the FHFA 3% down payment, is there a best way to size that opportunity for you guys and is there any reason to believe that maybe the newer fresher pools of capital are at maybe a competitive advantage relative to maybe the legacy players that may be a little bit more capital-constrained under PMIERS?

Well, Steve, it's Brad again. As you know, there's not a lot of details about the way that program will be constructed, so we can't say anything specific about it. Historically, it's been on a 3% to 5% of the market if we go back and look at what's historically gone to that type of execution. So we're certainly interested in it and see it as a potential expansionary factor in the market, but, as I said, no specifics so we can't really quantify it for you. As far as being relatively advantaged, I think we always think that clean, fresh capital has an advantage in the marketplace, but we'll need to see the details about those programs as they develop.

Okay. And then maybe just two quick ones for Jay. Any quick or any update on breakeven guidance for the insurance in force needed to break even and then secondly the size of the DTA?

Yes, so, Steve, we've given previous guidance that we expect to break even with insurance in force of $12 billion to $14 billion. That's always assumed an average premium yield of around 55 basis points. So to the extent aggregated single becomes a larger portion of that, of our insurance in force, it would certainly push it to the upper end of that range given you all know that's a discounted product.

Correct. Okay, great. Thanks, guys. And I'm sorry, on the DTA?

So we're going to look that up. We'll get right back to you on that, Steve.

Great, thanks.

Christine Worley, JMP Securities.

Thank you. Just a couple of numbers questions. For the expense line, I think it was a little bit lighter than I was forecasting for the quarter. Could we take this as a go-forward run rate now that the litigation expenses are stripped out?

So Christine, we haven't taken a detailed look at 2015 yet, but certainly for Q4 I think you can assume something similar.

Okay, okay. And then potentially a little bit of an increase in 2015 as the book continues to grow?

Yes, I would expect it to rise very modestly in 2015.

Okay, perfect. And then turning to the growth, the new insurance written growth, now that you've got some of the largest lenders in the Company signed up or in the country signed up and that's opened the correspondent channel, can we expect to see the same level of sequential growth that we saw this quarter next quarter and over the next few or would you expect that to slow as you're dealing with -- starting to deal with some larger numbers?

Well, Christine, this is Brad. We haven't given guidance because we're just still at that point where we're so new and we're so small, it's difficult to predict the exact ramp and the exact runup, but we're not seeing a slowing. We're continuing to see very, very good growth going forward. So we're excited about our penetration in the market and the way we're deploying the capital.

Great. And then one final question. I just wanted to make sure that I heard you correctly. Did you say you thought that we would get a final word from the FHFA on PMIERS by the middle of 2015? Has that been pushed out a bit?

You did hear me correctly. We don't know for sure, and when we ask people in Washington, you get a variety of answers. But I think we're building a little conservatism in there. I know some people may be expecting it a little bit sooner, but given the rate at which these things get finalized, that's our expectation.

Okay. I know it's hard to say it with anything sort of definitive, but would by the end of 2014 be pretty out of the realm of possibilities from what you're hearing?

Well, I guess all I would say to that is there's not much of 2014 left. So again, at the rate when these things get exposed and they get commented on and then the regulators take time to consider the comments, it just seems to us to be a little bit on the outside to get it done this year.

Okay, great. Well, thank you for your answers and congrats on the progress.

[Amy Dadone], Focus Point.

Hi, guys, thanks for taking my questions and congrats on the good quarter. So previously you had announced $950 million of new insurance written, but it came in a little bit above that amount. Can you explain what's driving the difference?

This is Jay. We were just trying to approximate a number at the time that we announced it. The quarter hadn't quite ended, so we didn't know the exact number.

Okay. And in terms of the cash balance, it increased pretty substantially. It looks higher than it's ever been. What's driving that change?

Oh sure. So we shifted a portion of our investment portfolio, so we liquidated a number of securities and that just hasn't been reinvested at this point. So it's a really temporary phenomenon.

Okay, but it's expected to go back to the previous run rate level?

Correct.

Okay. And then lastly on the -- in terms of the premiums, it looks like it improved a little bit for monthly business and improved it significantly for aggregated single premium business. Can you just describe what's driving the improvement? Is it credit mix?

Yes, so you'll notice we give the FICO and LTVs in the press release as well. It may not correspond exactly, but typically the difference there is going to be a result of a slightly different credit package.

Okay. Do you foresee a continued improvement as the year goes on into next year?

I wouldn't read too much into any fluctuations you see here. The credit package is relatively similar from one pool to the next, so it really depends on that. But I wouldn't read anything into that trend there.

Okay, great. Thank you.

So Steve Stelmach, going back to your DTA question, it was approximately $45 million at the end of the quarter.

(Operator Instructions). Randy Raisman, Marathon Asset Management.

Hey, guys, how are you doing? When you talk about new insurance written growing at a similar rate, I mean are you implying a similar dollar rate of growth or a percentage rate of growth from here?

Randy, this is Brad. I was just responding to the earlier question, were we seeing things slowing down or anything. I was just saying, no, we're not seeing it slow down, so we weren't providing a forecast or any kind of a guidance about the growth rate.

Got it. Okay. Thank you.

There are no other questioners in the queue at this time.

Okay. Well, thank you, everybody, for joining us today. We appreciate your interest in the Company. Thank you very much.

Ladies and gentlemen, thank you for your participation in today's conference. This now concludes the program and you may all disconnect. Everyone have a great day.