Good day and thank you for standing by. Welcome to the MGIC Investment Corporation’s First Quarter 2021 Earnings Call. At this time all participants are in a listen-only mode. [Operator Instructions] And I would now like to hand the conference over to your speaker today, Mike Zimmerman, Senior Vice President, Investor Relations. Please go ahead.

Thanks, Laurie. Good morning and thank you for joining us this morning and for your interest in MGIC Investment Corporation. Joining me on the call today to discuss the results for the first quarter of 2021 are Chief Executive Officer, Tim Mattke; and Chief Financial Officer, Nathan Colson. I want to remind all participants that our earnings release of last evening, which may be accessed on our website, which is located at mtg.mgic.com, under Newsroom, includes additional information about the company’s quarterly results that we will refer to during the call and includes the reconciliation of non-GAAP financial measures to the most comparable GAAP measures. We have posted on our website a presentation that contains information pertaining to our primary risk in force, new insurance written, reinsurance transactions and other information, which we think you’ll find valuable. I also want to remind listeners that from time to time, we may post information about our underwriting guidelines and other presentations or corrections to past presentations on our website that investors and other interested parties should be aware of. During the course of this call, 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 those factors, including COVID-19, that could cause actual results to differ materially from those discussed on the call are contained in the Form 8-K and Form 10-Q that were filed last night. If the company makes any forward-looking statements, we are not undertaking obligation to update those statements in the future in light of subsequent developments. Further, no interested party should rely on the fact that such guidance or forward-looking statements are current any time other than the time of this call or the issuance of the Form 8-K or Form 10-Q. With that, I’d like to introduce Tim Mattke.

Thanks Mike, and good morning. I’m pleased to report that we produced another quarter of very strong financial results. After my opening remarks Nathan provide more detail about those financial results and about our capital position. Then before we open the line for questions, I’ll wrap up by discussing the current operating environment, including activities related to housing policy. During the quarter, we are in GAAP net income of $150 million, which reflects a strong credit profile and performance of our insurance in force, the favorable housing and mortgage market trends, improving economic conditions, and our market presence. For some time now our main business objective has been to use our resources to provide critical support to the housing market, especially first time in low and moderate income home buyers. We try to achieve that objective by among other things, providing competitive offerings and best-in-class service to mortgage originators and servicers and by maintaining a sharp focus on the sources and uses of our capital. This strategy has allowed us to capitalize on the strong demand for single-family housing. Our new insurance written or NIW continued to be weighed more heavily towards the purchase transactions versus refinance transaction accounting for 60% of our NIW in the first quarter. While interest rates were higher in the first quarter than at times in 2020, they’re still very attractive for many borrowers, whether to purchase a home or to refinance. And our industry continued to enjoy a relatively larger market share of refinances than in prior periods. These strong housing and mortgage market conditions led to another very busy quarter for our customers and as a result of this and our market presence, we wrote nearly $31 billion of NIW in the first quarter. Well, the first quarter provided a strong start for…

Thanks, Tim, and good morning. As Tim mentioned in the results show, we had another strong quarter of financial results as the impact on our business from the effects of COVID-19 continues to diminish. In the first quarter, we are in $150 million of net income or $0.43 per diluted share and generated an annualized 13% return on beginning shareholders’ equity. This compares to $150 million of net income or $0.42 per diluted share an annualized 14% return on beginning shareholder’s equity in the same period last year. Adjusted net operating income per diluted share in the first quarter was a $0.001 [ph] lower than the reported GAAP amount, a detailed reconciliation of GAAP net income to adjusted net operating income can be found in the press release. During the quarter, total revenues were $298 million compared to $307 million last year with the decrease primarily due to lower investment income and lower net premium earned. Investment income was lower as the larger investment portfolio was more than offset by lower yields. Net premiums earned were lower primarily due to a lower net premium yield, an increase in the amount of premiums and risk ceded through our reinsurance transactions. These affects were partially offset by an increase in accelerated premiums earned from single premium policy cancellations compared to the first quarter of 2020 and higher average insurance in force. The net premium yield for the first quarter was approximately 41 basis points, which was down sequentially by approximately two basis points, primarily because the in force premium yield continues to reprice through attrition of the older policies, which generally have higher premium rates. We also realize less benefit from accelerated premiums earned from single premium policy cancellations compared to the fourth quarter of 2020. Single premium policies represent a smaller…

Thanks Nathan. Before moving to questions, let me address a few additional topics. There continues to be a lot of activity in housing policy circles the meaningful progress is slow. This could be in part due to the fact that the housing finance system, while it could be improved, is operating relatively efficiently and providing critical support to the economic recovery. As widely expected it appears that the new administration is focusing its policy efforts and continued loss mitigation efforts for homeowners impacted by COVID-19 and ensuring a successful economic recovery rather than large scale changes to housing, finance, infrastructure and policy. Today, we are not aware of any policy initiatives that would provide new challenges to our company or industry. Meanwhile, we will continue to advocate for the increased use of private mortgage insurance in the housing finance industry in order to reduce taxpayer exposure to housing, while still maintaining a resilient housing finance system. Long-term I remain encouraged about the future role that our company and industry can play in housing finance, and believes that other regulators and policymakers share a similar view. The COVID-19 pandemic reminds all participants that some market options for credit enhancement can be scarce or unavailable at various points in the economic cycle. While our company and industry are organized solely to provide credit enhancement solutions to lenders, borrowers and the GSEs and all the economic cycles, not only does private mortgage insurance offer dedicated capital day-in and day-out to the housing industry that offers many solutions and a great value proposition for lenders and consumers to overcome the number one barrier to home ownership, the down payment. As I mentioned at the beginning of my remarks, we are focused on continuing to provide critical support to the current housing market, especially low and moderate income and first time home buyers. Currently, we are writing high levels of new insurance and are experiencing decreasing levels of delinquencies, both duly reported and open inventory. We have a book of business that has strong underlying credit characteristics and the supported by a balance sheet that has a low debt to capital ratio, investment portfolio of nearly $7 billion, contractual premium flow and a robust reinsurance program. I am confident in our positioning in this market and we like the risk reward equation that the current conditions offer. We have the right team in place to build off our solid foundation to continue to deliver competitive offerings and best-in-class service to our customers and generate strong returns for our shareholders. With that operator, let’s take questions.

[Operator Instructions] And our first question is from Mark DeVries of Barclays. Please ask your question.

Yes, thank you. I was hoping you could give us a sense of why you think in terms in force grew so much in April. What you’re seeing in terms of pricing and whether you think any pricing adjustments might’ve impacted kind of your – the business you wrote in April?

Mark, it’s Tim, I guess it’s tough to know exactly what the overall size of the April market is. I think, we continue to be encouraged that home purchase volume seems to be remain strong, even though, as we’ve talked about in the comments that refi activity seems to be slowing down at least for mortgage insurers. But I think it’s really, as home purchases remain strong, I think interest rates are still very attractive for home buyers. And so for the most part, I think we’re talking it up to that is, that there’s still a lot of tailwinds from that standpoint.

Okay. And you’re not seeing any signs the pricing has kind of shifted in a way that might be moving business towards you this month?

I mean, not that I would point to. I think it’s more that, from a purchase we’re getting into the time of the year where that strong and we think interest rates, even though some headlines will say that interest rates are going up and making things less affordable. We still think that its attractive interest rate for a lot of would be home buyers.

Yes, Mark. This is Mike and just for others too, a reminder that the NIW right is clearly a trailing indicator. So that’s coming from that’s applications and activity from in April, that’s coming from February and March, and then that gets closed and then recognize and put on our books. So, you’re going to kind of think about that. Rates were just starting to move up and we had some volatility in rates, at that time as well. So just another point on top of, what Tim had said?

Got it. And then on a separate topic, I mean, Nathan alluded to the fact that a 60% of borrowers in forbearance are coming up on kind of the scheduled end of their forbearance periods, but did you expect some borrowers will have that extended. Could you talk a little bit more about that kind of what your expectations are? What you’re hearing out of Washington, and if they don’t kind of, what’s your strategy for those loans going forward?

Sure. Mark it’s Nathan, I think with the GSEs extending the forbearance period up to 18 months, for most of the borrowers that are in forbearance, those that were in, I think it was at the end of February. It doesn’t seem like there’s going to be a lot of borrowers that follow a path where they exit forbearance after 12 months and enter foreclosure, partly due to the moratoriums and partly due to the option to extend out to 18 months. So, we don’t think that we’re going to see a lot of borrowers exiting forbearance in kind of negative outcomes in the near term. And that if borrowers are going to exit forbearance and enter foreclosure that’s likely pushed out towards the end of the year at this point.

Okay. And are you having conversations with your – with servicers all about kind of what their approach will be there? Whether it’s, start to do things like deed in lieu, or I assume that the first effort will be to try and restructure the mortgage and get to a payment that the borrower can make?

Hey, Mark, it’s Mike again. Yes. I mean, absolutely. We engage the servicers, we participate in the housing policy council and clearly there’s a lot of news too, with the CFPB, looking at making, from a borrower perspective is getting more active and involved in reviews. So, what services or strategies will be, I think will be the same tried and true traditional strategies that they’ve always used to do loss mitigation, clearly we’ve new tools here, primarily the deferral option, within the forbearance arrangement. More formalized, I should say, too, that was always somewhat available. So, I think it’s too early to tell what exact strategy would be. But your comment on deed in lieu, that’s kind of what’s happening now when you look at our page, it’s deed in lieu, it’s short sales, it’s non-foreclosure activity. So those activities are taking place where the, borrower thinks that makes the most sense for them. And the outcome is best for everybody, quite frankly, at that point in time. Hopefully I thought.

Great. Thank you.

Our next question is from Bose George of KBW. Please ask your question.

Hey guys, good morning. I just wanted to follow-up on the, sort of the pricing related question. There’s also been a kind of movements in market share among your peers this quarter you guys felt fairly stable just wanted to get your thoughts on competition and pricing in the market. And specifically, do you think that price increases post-COVID have been given back as the credit outlook has improved?

Yes, Bose it’s, tough to say obviously where everybody else is. It’s a competitive marketplace. I think, we view it as a very attractive risk reward. I think generally it’s safe to say that the concerns that people had if onset of COVID those are probably dissipated in the industry from sort of thinking about the risks and how to price. So, I think it’s safe to think about it in that term to think about what happened with market share with other participants. That’s tough for us to speculate on obviously, but we’re very happy with the capital. We were able to deploy this last quarter, felt like we’re getting really strong returns continued that this quarter as well and so again, looking forward to the remainder of the year.

Okay, fair enough. That’s good. So safe to say that you’re seeing returns consistent with your hurdles. It was no change this quarter, given what was going on in the market?

Yes, I think it’s safe to say that we are getting returns that are at, or exceed our hurdle rates and again, viewed as a very good market to be participating in.

Okay, great. Thanks. And then just one on capital return, so you guys obviously have a lot of excess at the holding company, how are you thinking about potential capital return there while the FHFA has this been a constraint on dividends up to the [indiscernible], but you obviously have a lot of flexibility with the cash that’s already there.

Yes. Bose this is Nathan. It’s a good question something that we obviously spend a lot of time talking about. We have continued to pay that the shareholder dividend as a form of capital return through this period. We do have about $800 million at the holding company. So I think we have options, but what we said last quarter, and I think it’s still true is that meaningful capital return. Given the scale of our business really can’t start until dividends from the operating company start again. So while, we continue to evaluate these things, I’d be more focused on, what happens after the GSE kind of – the expiration of the GSE, a temporary rule that requires their approval, and I think we’ve had really constructive conversations with our regulator and, a lot of conversations internally as well about how we want to approach that going forward. And continue to view that as really the thing that’s going to drive, kind of our capital return plan, longer term. So don’t have a, I guess a lot more to guide on today.

Okay, great. Makes sense. Thanks.

Our next question is from Doug Harter of Credit Suisse. Please ask your question.

Thanks. You guys mentioned, you expect premium yields to continue to drift lower, any sense as to how long until we kind of bought them out and kind of reached the new equilibrium?

Yes. It’s, Nathan. It’s a good question again. I kind of point you to the direct enforced portfolio yield as opposed to the net yield, which I do think can move around for other reasons, it’s been coming down about a basis point a quarter over the last several quarters. I think that run rate it seems like a pretty good thought for the remainder of 2021, but again, that’s going to be influenced by the level of refinance activity. I think we’ve been repricing a little bit faster in this environment with how much has been running off and how much has been coming on. So, if we end up in an environment where the refinance activity is much lower, I think that would serve all sequel to slow that pace. And if we continue in a very high refinance environment, continue to see that pace. Beyond 2021 over the next several quarters, I think there’s just probably too many factors that could influence it to try to provide kind of longer term guidance there.

Understood. Thanks, Nathan.

Our next question is from Philip Stefano of Deutsche Bank. Your line is open.

Yes, thanks. And good morning, hopefully a quick geography question for you. The IBNR adjustment that was done, where does that show up? Is it in the current period or prior period loss provisioning?

That’s in the current period.

Okay. Thank you. And so Nathan, you had talked about expenses and they appreciate kind of the updated thoughts around that. As we look at the path towards the 2020 to 2025 [ph], I mean, it is that sequential upticks throughout the year and, how should we think about what the fourth quarter number is? I mean, is that an exit run rate that we should contemplate for full word quarters and think, is this just inherently digitization is more expensive from an operating perspective to run this business? Or is there some kind of catch up in 2021 and maybe the expenses, have a tick down as we contemplate 2022 and beyond.

Yes, I know, good question. I don’t, view the, there being a kind of unnecessarily any kind of seasonality or direct upward path or any fault I would say, and expenses quarterly over 2021. So, we’re a little bit lower than that run rate guidance, but not a lot lower. I mean, so I think what we’re saying is we do think that, in the second, third and fourth quarters and in aggregate will be a little bit higher than the average that we had in the first quarter. But in terms of the longer term, I think what we talked about last quarter was a lot of this investment is to gain increased efficiencies as well. And we’re going to start to see some of those efficiencies coming online, even in the – say the back half of this year, they might be masked in the near term by the incremental investment. But I don’t think that, where we end up in the say the fourth quarter is the new long-term run rate. That’s certainly not the way that we entered this kind of investment with that in mind.

Okay. That makes sense. And then just one more philosophical question, as we think about deed in lieu in short sales versus the strength that we have in the broader housing market. I mean, is there an opportunity in here to acquire the property and just, sell it at a gain, given the optionality that you have in the MI policies? Can you be more aggressive if you want to in this market, does it make sense just given what the strengths we have in the broader housing market and home price appreciation?

Hey, Phil Mike here. So, you’re right, we always have the option to acquire the property. It’s somewhat counterintuitive, when the markets are strong, even though we have that opportunity, then you just see others, bidding outbidding us, because we’re looking to cover, basically mitigate our loss and a maximum loan possible, not necessarily make a gain on the sale of the property on a – reduced it to a, if you will, a negative loss for lack of a better way to describe it. So yes, we see opportunities there, but we very little and plus the number is so small. I mean, it just doesn’t make sense to be more aggressive to I’ll say, make turn it into a profit center.

Yes, just curious. Thank you so much.

Our next question is from Ryan Gilbert of BTIG. Please ask your question.

Hi, thanks guys. I jumped on a little late, so sorry if you addressed this. But just going back to that April insurance in force growth, it sounded like in response to a previous question the improvement in April IIF was really driven by a stronger NIW growth and less so from declining cancellations. Is that the right way to think about it or did you see a pickup in persistency in April?

Yes. Persistency, I don’t think I’ve picked up in April. I mean, given the rate environment, so it’s really a function of the market opportunity that was out there. And again, this is, the April NIW is really reflective of that February, March, early March activity. Think of it that way, where rates were just beginning to kind of bounce up to maybe get above 3% before they started retreating again. So, I think it’s just more natural and organic from the overall market opportunity perspective.

Okay. Got it. Thanks. Second question is on premium yield, I guess, on the direct premium yield. Do you think once the pre-2018 book fully runs off, we’ll continue to see reductions in the premium yield? Or do you think that yield kind of stabilize this?

Ryan, it’s Nathan. I mean, I would say our experience has been those books never fully run off. There’s – these things have a very long tail to them, but even if you kind of generalize and say that that those are primarily having run off, I mean, certainly the reason why the yield is trended down is that the newer policies have been written with kind of a better risk profile than the average in force that we had previously and also at lower premium rates. Once it’s the in force contains only that then the in force yield will kind of mirror that. So, I think mathematically what you’re saying is correct, but again, kind of looking at it beyond, at least from our perspective, looking at it beyond 2021, there’s just a few too many moving parts to do it with any certainty.

Okay. Got it. Thank you very much.

Our next question is from Mihir Bhatia of Bank of America. Please ask your question.

Hi, good morning and thank you for taking my questions. I just had one quick one. I just wanted to ask about the – and I apologize if I missed it, if y’all addressed this already too, but I wanted to ask about the April delinquency and the delinquent inventory declining so much. Is there something to, I guess the question is like, would there something particularly unusual about that time period because of the foreclosure expiry and then getting extended or should – or do you think that April is indicative of what the kind of improvement we could see for the next two, three months? Because I imagine there’s a lot of loans coming up in the 12 – reaching the 12 month mark in the next few months. Thank you.

Hey Mihir, it’s Mike. So, I mean, remember right, seasonality does still play a role in credit, new notices and cures, and regardless of the economic environment, whether it’s a really strong economic environment or a weak economic environment, you always see seasonality in the beginning part of the year. And I think that’s clearly that’s an influence of it. How much of it is seasonality versus I’ll call it organic, re-entry, people moving back, that’s a little harder to parse out at this time. So, but – seasonality, I think has a when we look at it sequentially, month-over-month, I think you got to keep that in mind as well.

Got it. Okay. Thank you.

And there are no further questions on queue presenters. You may continue.

Okay. Again, want to thank everyone for their interest and their questions another great quarter financially and hope everyone is staying happy and healthy as we move through COVID-19, but again, thank you for your interest in MGIC Investment Corp.

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