Hello, and thank you for standing by. My name is Bella, and I will be your conference operator today. At this time, I would like to welcome everyone to the Essent Group Ltd. Second Quarter Earnings Call. [Operator Instructions]. Thank you. I would now like to hand the conference over to Phil Stefano, Investor Relations speak. Please go ahead.

Thank you, Bella. Good morning, everyone, and welcome to our call. Joining me today are Mark Casale, Chairman and CEO; and David Weinstock, Chief Financial Officer. Also on hand for the Q&A portion of the call is Chris Curran, President of Essent Guaranty. Our press release, which contains Essent's financial results for the second quarter of 2025 was issued earlier today and is available on our website at essentgroup.com. Prior to getting started, I would like to remind participants that today's discussions are being recorded and will include the use of forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially. For a discussion of these risks and uncertainties, please review the cautionary language regarding forward-looking statements in today's press release. The risk factors included in our Form 10-K filed with the SEC on February 19, 2025, and any other reports and registration statements filed with the SEC, which are also available on our website. Now let me turn the call over to Mark.

Thanks, Phil, and good morning, everyone. Earlier today, we released our second quarter 2025 financial results which continue to benefit from favorable credit performance and the impact of higher interest rates on persistency and investment income. Our second quarter performance demonstrates the strength of our business model and the current macroeconomic environment. We believe that our buy, manage and distribute operating model uniquely positions Essent within a range of economic scenarios to generate high-quality earnings. Our outlook on housing remains constructive over the longer term as we believe that demographics will continue to drive demand and provide home price support. Over the last several years, demand has exceeded supply resulting in meaningful home price appreciation and affordability challenges. A byproduct that these affordability issues is that higher creditworthy borrowers are being qualified for mortgages, as evidenced by the weighted average credit score of our new business. Also, the increase in home values has resulted in further embedded equity within our insured portfolio, which provides a level of protection and reducing the probability of loans transitioning from default to claim. And now for our results. For the second quarter of 2025, we reported net income of $195 million compared to $204 million a year ago. On a diluted per share basis, we earned $1.93 for the second quarter compared to $1.91 a year ago. On an annualized basis, our return on average equity was 14% in the quarter. As of June 30, our U.S. mortgage insurance in force was $247 billion, a 3% increase versus a year ago. The credit quality of our insurance in force remains strong, with a weighted average FICO of 746 and a weighted average original LTV of 93%. Our 12-month persistency on June 30 was 86%, flat from last quarter. While nearly half of our in-force…

Thanks, Mark, and good morning, everyone. Let me review our results for the quarter in a little more detail. For the second quarter, we earned $1.93 per diluted share compared to $1.69 last quarter of $1.91 in the second quarter a year ago. My comments today are going to focus primarily on the results of our Mortgage Insurance segment which aggregates our U.S. mortgage insurance business and the GSE and other mortgage reinsurance business at our subsidiary, Essent Re. There's additional information or in corporate and other results an exhibit of the financial supplement. Our U.S. mortgage insurance portfolio ended the second quarter with insurance in force of $246.8 billion, an increase of $2.1 billion from March 31 and an increase of $6.1 billion or 2.5% compared to $240.7 billion at June 30, 2024. Persistency at June 30, 2025, was 85.8% and essentially unchanged from the first quarter of 2025. Mortgage Insurance net premium earned for the second quarter of 2025 was $234 million and included $13.6 million of premiums earned by Essent Re on our third-party business. The average base premium rate for the U.S. mortgage insurance portfolio for the second quarter was 41 basis points at the net average premium rate was 36 basis points, both consistent with last quarter. Our mortgage insurance provision for losses and loss adjustment expenses was $15.4 million in the second quarter of 2025 compared to $30.7 million in the first quarter of 2025 and a benefit of $1.2 million in the second quarter a year ago. At June 30, the default rate on the U.S. mortgage insurance portfolio was 2.12%, down 7 basis points from 2.19% at March 31, 2025. While we continue to observe a decline in the number of defaults associated with Hurricanes Helene and Milton during the second quarter…

Thanks, Dave. In closing, we are pleased with our second quarter financial results as Essent continues to generate high-quality earnings while our balance sheet and liquidity remains strong. Our outlook for housing remains constructive over the long term, and we believe Essent is well positioned to navigate the current environment given the strength of our buy, manage and distribute operating model. Our strong earnings and cash flow continue to provide us with an opportunity to balance investing in our business and returning capital to shareholders. We believe this approach is in the best long-term interest of Essent and our stakeholders, while Essent continues to play an integral role in supporting affordable and sustainable homeownership. Now let's get to your questions. Operator?

[Operator Instructions] And your first question comes from the line of Terry Ma with Barclays.

I wanted to ask about home prices and your expectations going forward. To the extent home prices kind of trend negative, how do you think about pricing on a go-forward basis? And then second, how would you feel about the more recent vintages that the industry is underwritten, which has seen just less home price appreciation overall?

I think on home price appreciation -- where do we see home prices going? Well, it really depends down at the MSA level. So I mean, we have a pretty detailed forward-looking model across all of the MSAs. Puts a lot of -- I would say the driving factors are clearly month supply, recent home price appreciation and job growth, right? Those are kind of 3 factors, if you just kind of boil it down to a local community. And I think there, yes, we see home prices going up in certain areas still because of the lack of supply. Other areas, we think there's going to be some weakening, and we've thought that for a while, and it depends on the extent of it 5-ish, 10-ish percent maybe in certain markets. I think when we take a step back, that's actually pretty good. It's healthy. Some of the markets have really increased rapidly, I think almost a 50% increase over a few year period. Income growth still at 3%, 4%. And then you had a doubling of rate -- that's why you've seen such kind of slowdown in housing, right? We're kind of coming out of that. You've heard me say it before the COVID bubble, so to speak, with low rates and high demand. And we're kind of on the second leg of that. So I think coming out of that, if you think of just affordability when it becomes kind of normalized again, you're going to need a mix of job growth, HPA kind of flattening out or decreasing in certain areas and clearly, a little bit of relief on rates, right? And that's -- and you can almost draw the math up is depending on where your belief is on rates. So I think, again, I…

Got it. Super helpful. And I guess maybe on just credit for the quarter. New defaults were up 9% year-over-year. The pace of increase has kind of decelerated markedly in the last few quarters. It seems like it's pretty consistent across the MIs that I cover. So I guess any color on the makeup of new defaults that you've seen in the last quarter or 2? And I guess, what's the outlook there?

Yes. I mean, again, new defaults, nothing surprising. I mean, very consistent with other quarters. And just again, from an investor standpoint, you just have to understand that's really the -- we're starting to get back to probably the normal seasoning pattern around the faults where you see it kind of decrease in the first half of the year and tends to pick up a little bit in the second half of the year. So there's kind of the normal seasoning that folks should be aware of, but it happened last year and it seemed to catch everyone by surprise that our default seasons. And then now they're kind of -- they decreased in the first half of the year. But I think you'll see that normal seasoning big picture. You know, Terry, again, it's 2-ish point was at 2.12% default out of roughly 811,000 or 812,000 loans that we have. So again, it ebbs and flows a little bit, but I think big picture, given the embedded equity in the portfolio, having some of those even if they become defaults transitioning, the claim depending on the vintage, it's probably in a lower probability side. So again, I think from a credit standpoint, picture, we feel pretty good from that first loss perspective.

And your next question comes from the line of Bose George with KBW.

On the buybacks, would you characterize the pace of your buybacks this year as opportunistic? Or is there any change in how you're thinking about excess capital, which is obviously built quite a bit over the last couple of years?

It's a little bit of both, Bose. I think we've always -- I think we kind of have -- we are valuation sensitive around the buyback. So we kind of have a grid that we execute across. And it changes quarter-to-quarter depending on where we think credit is. Are there any opportunities to invest the cash? Pretty high bar given the returns in the core business. And to your point, we said before we have a retained and invest mentality. Well, we haven't really invested anything in a couple of years. So we've retained a lot. So it's a little bit of -- we have a lot of buildup of excess capital. We like where the valuation is. We think it's really good returns to the shareholders. So it's a good use of proceeds and kind of given what we did in July. I wouldn't expect that to change for the remainder of the year. I wouldn't be surprised if it doesn't change, given what we're looking at and we'll have something else. It's probably going to be in an investor deck, we'll put out next week around kind of the embedded value of the portfolio. One of our peers did it a couple of years ago and stopped doing it, but it's a really interesting kind of slide that I think it's important for analysts and investors to take a look at. And if you think about -- it will give you some context for how we think about the company, Bose. I mean with roughly $5.7 billion of capital that we have today, that's roughly where the stock trades in terms of a market cap. If you look -- it doesn't really give any credit meant for the what -- roughly $245 billion insurance in force we have,…

That's great. Very helpful. And then just one follow-up on the buybacks. So what was the dollar amount that was spent just during the second quarter?

Bose, it's Dave Weinstock. So we purchased 3 million shares at $171 million in the second quarter.

And your next question comes from the line of Doug Harter with UBS.

Mark, just I guess following up on that embedded value and the buyback. How are you thinking about sizing it, what are the limitations of kind of cash flow up to the holding company? And just how do you think about holding back for opportunities that may or may not present themselves versus kind of buying back today?

No, it's a good question. I think there's clearly a limit, right? I mean -- and we have -- we get cash back to the group 2 ways, obviously, through U.S. and holdings, which is the core. So we'll dividend it up from Guaranty, up to holdings and we have to get it to Group then we have Essent Re. So as we tended to use a little bit more Essent Re recently, it's a little bit more tax efficient, Doug. But there is a limit. So when you think about kind of payout type ratios, I think 100 is probably -- is kind of the max just from kind of how the cash moves through the system, not saying we would do that. But if you're looking at an upper end, just over the -- where it was kind of in the first half of the year, that's a decent level. In terms of how we calculate excess capital, we've gotten many questions over the years. PMIERs is certainly one. But we also look at it from an enterprise framework, right, because we include Essent Re in there. So we kind of look at it like consolidated capital requirements and needs. And we run it through different stress. I would say the Moody's S4 stress is one and the constant severity model that they use Moody's obviously looked at both of those during the upgrade. So -- and I think that's important, right? So I think you have now another independent party looking at our balance sheet and our risk and detailed review of the stresses, that feels comfortable now that we're at the kind of single A level. I think it's good news for investors and clearly for bondholders. We'll also look at it, we'll still run it…

And your next question comes from the line of Rick Shane with JPMorgan.

I'd like to dig in a little bit on the persistency. When we look at the persistency by vintage, there is some dispersion. The '23 vintage persistency was a little bit lower. That makes sense. Presumably, that is the copious of the slightly seasoned vintages. And so you probably have borrowers there who are trying to take advantage of the refi window. The other 2 vintages that have persistency a little bit lower sequentially are 2020 and 2021. I'd like to delve in a little bit more on that. Is that just natural aging associated with those vintages? Should we expect regardless of rate that the persistency should trend down there? Or is it exogenous factors like borrowers taking seconds and the brokers getting appraisals and allowing borrowers to -- within the PMI?

I mean a lot to unpack there, Rick. I would say, which is a typical one of your insightful questions. I think when we think about persistency, a little bit of it depends on -- you didn't bring this up, but our persistency tends to be a little bit higher because we don't really place a lot in the lower kind of half of the high LTV like the 80% to 85%. If you look at our -- if you kind of break our market share between 80%, 85%, we may be the lowest in the industry. So having a bit of a higher LTV, which clearly comes with more risk, also helps a bit on the persistency side. I think on the earlier books 2021, I just think they're seasoning, right? And all of a sudden now, you're 5 years into it. Especially folks who bought the house then, if their families are bigger, they're again, rates on all side. They're looking -- they could be looking to move up. So that doesn't -- that's pretty natural, and that's happened over time as the portfolio seasons. I don't think it's seconds, and I know there's a lot of noise around second. I do think seconds in home equities will become continue to increase as they should. If someone is kind of locked into the 3% mortgage and they need another bedroom and they get the home equity loan and in addition, it makes perfect sense. We haven't done it most recently, but I think the last time we did it, 3% of our portfolio had seconds on it. So it's -- I wouldn't, again, back to reading big picture articles and assigning it into the MI portfolio. Little tougher to stick a second on an 85% or 90% LTV,…

No. It's fair. And there's an interesting comment there, which is you've been wrong many times. And I appreciate the humility of that and acknowledge the number of times I've been wrong, too. But I would argue that you've built this portfolio not for being right, but actually for being wrong and that's part of what you constructed here. I'm curious and this question's driven by something we saw earlier in the week. We have another company we followed that makes very, very short-duration loans. And they are, because of that and the short-term uncertainty, pulling back from originations. And if they miss a window of 6 months, given the 12- to 18-month duration of their assets, they can recover that very quickly. And it made me think of you guys and how long the duration of your portfolio is are you willing to -- when you see those -- have those concerns take the risk of pulling back and knowing that for 5 years, you will have a cohort that is underrepresentative at the risk of being wrong?

I think it depends. I wouldn't say we wouldn't shy away from lower share, and we've done it in the past. I think we probably we -- there's been records where we've been -- I think we've been top market share like twice in a quarter in our history, but we've been at the bottom more than twice. So we're not afraid to kind of make calls there. A lot of it is around pricing. And it's also an interesting thing in our industry, there's a lot of, as you know, and that's really the only competitive factor to the industry, Rick. We don't really have a lot of credit competition in the industry, and that goes back again to the guardrail set up. We've always called them the credit guardrails set up with the qualified mortgage rule, Fannie and Freddie with DU and LP, they did such a good job of segmenting risk. They do a great job around QC. We're kind of the beneficiaries of that as is the industry, there's not a lot of credit competition. And I think we haven't gotten a question, but if you think about GSE reform, like what happens if the GSEs go public? One, I think that helps us a lot more so than people think because I think it will bring a lot more liquidity into the space from an investor standpoint. It helped us on the CRT side kind of more visibility probably more share, right, because they're going to start -- they're going to -- they'll do the buy managed and distributed operating model, again, probably in much greater force and they'll probably expand the market a little bit. And there's good and bad to that. It's good because higher top line. The bad is it could introduce…

[Operator Instructions] Your next question comes from the line of Mihir Bhatia with Bank of America.

First, I just wanted to actually follow up on the EssentEDGE point you just made, Mark. Specifically, I guess, EssentEDGE next generation has been out for a couple of years. Can you just talk a little bit about what you've seen so far? I appreciate you saying that you haven't -- I guess from the outside, we haven't really been able to -- we can't really tell given how low default rates are how these engines are different. But maybe just talk a little bit about what you're seeing internally? And are you continuing to invest with EssentEDGE adding? Or is it more just a matter of now we're getting all these data and it's just waiting for the fairway as you mentioned?

Yes. I would say we haven't made a ton of investment on it over the last 12 months once we got -- we did a lot to get that second credit bureau. And so clearly, with some of the noise around the industry with the tri-merge and things like that, we may make the investment to get to get the third bureau. Clearly, and I've gone the whole call without saying AI, which seems to be the banter for most companies, not in our industry, but others. The technology there has increased so much, just even over the last 6 months. So we're seeing more opportunities to use it within our IT group and other areas to speed things up to market. And I think that's -- we saw some of the lenders announced some things, which we've been watching. So there's some things there that we potentially could use to improve it over time, which I don't know if I necessarily would have said that a year ago. I know we felt pretty comfortable with it a year ago. And you're right, so I think you're going to need some disparity in credit for it to really shine. The one way for people to look at it today for investors to look at it today, I mean, here is looking at our earned premium yield, right? Our earned premium yield is higher than the rest of the industry. And what does that tell you and our defaults are relatively the same as we're able to get a little bit extra yield, okay? What's a basis point or 2? 2 basis points on $245 billion adds up. So I would -- I think there -- if you're from the outside looking in, that's probably the -- that's probably the best evidence of kind of the success of how the credit engine works. And again, remember, it's just a credit engine. We'll use that then to kind of create price using an old kind of fashion yield analysis. And Mihir, the price is a little bit -- you're testing pricing elasticity in certain markets where you can get a little bit more price. So think of it more as a way to get value for an individual loan.

No, that is helpful and it's certainly something we see in the data. You mentioned AI. And my second question actually does relate to AI, but almost like from a little bit of a threat to your business? And maybe not a threat. I was trying to understand the implications. But specifically, I'm talking about today, borrowers getting an appraisal and canceling MI. My understanding is that is not super common. But as more and more data moves to the crowd, fintechs in a way of trying to build these personal finance recommendations, do you worry about that becoming something that becomes more common ask to go get an appraisal and cancel MI from existing policies? How would that -- something like that impact your business and returns?

Yes. I mean it's been kind of -- it's been a discussion over the last 5 years ever since kind of rates went down. It's not very common in the business. And part of it is there's clearly friction to it, for sure, Mihir, but a lot of the major servicers do -- they do notify the borrowers. So the borrowers are aware of it or they're notified of it. It's just small dollars. I think it's -- again, you're going to -- there's work to be done to refinance something that's 30 to 40 basis points. So I'm not saying it can't be done. We don't lose a lot of sleep over it. And I do think that we're -- in terms of AI, it will impact. I'd be surprised if it didn't. It's also going to make refinancings even in our lenders, I would say, today are brutally efficient and in refinancing loans. I think it's going to be even more frictionless. And as you speak to some of our top lenders and their investments technology, I think what's the common theme of all this, though, is the borrower benefits. So if the borrower -- right now, the borrower -- the MI automatically cancels below 80, I think that's a great rule and I think that benefits the borrower. So if there's a slowdown in rates and borrowers are locked into their mortgage and their home price appreciates significantly, and they're able to get the appraisal easier and cancel MI, good for them. Good for the borrower and that means it's a good borrower. So yes, we don't get too fussed about it. There could be some economic impact to it, but I don't think it's very big. So I wouldn't -- we're not going to lose a lot of sleep over it.

Got it. And then just if I could squeeze in one question on just OpEx. Any thoughts on outlook for the year? I think there was a little bit of a downtick this quarter? Any call outs there?

Mihir, it's Dave Weinstock. We're -- I think we feel really good about our guidance. If you look at where we are for the 6 months, we think we're kind of right on track for our 160 to 165 probably towards -- a little bit towards the lower end. But on a quarter-to-quarter basis, things can fluctuate based on production volumes, staffing levels, things like that. So -- but overall, we're happy with where we are.

And I'm showing no further questions at this time. I would like to turn it back to the management for any closing remarks.

I'd like to thank everyone for their time today and enjoy the rest of your summer.

Thank you. Ladies and gentlemen, this concludes today's conference call. Thank you for attending. You may now disconnect.