-- Reports net income of $50 million or $0.22
per diluted share --
-- Net income from continuing operations of $45
million or $0.20 per diluted share --
-- Adjusted diluted net operating income of
$0.40 per share, up 74% from prior-year period --
Radian Group Inc. (NYSE: RDN) today reported net income for the
quarter ended June 30, 2015, of $50.0 million, or $0.22 per diluted
share, which included the following pre-tax items: a loss of $91.9
million on induced conversion and debt extinguishment from recent
actions to strengthen the company’s capital structure, and net
gains of $28.4 million on investments and other financial
instruments. This compares to net income for the quarter ended June
30, 2014, of $174.8 million, or $0.78 per diluted share, which
included pre-tax net gains of $25.3 million on investments and
other financial instruments, and $71.3 million of net income from
discontinued operations. The company also reported an income tax
provision of $34.8 million for the quarter ended June 30, 2015,
compared to an income tax benefit of $10.7 million for the quarter
ended June 30, 2014.
Adjusted pretax operating income for the quarter ended June 30,
2015, was $147.3 million, compared to adjusted pretax operating
income for the quarter ended June 30, 2014, of $74.1 million.
Adjusted diluted net operating income per share for the quarter
ended June 30, 2015, was $0.40. See “Non-GAAP Financial Measures”
below.
Key Financial Highlights (dollars in
millions, except per share data)
Quarter Ended Quarter Ended Percent
June 30, 2015 June 30, 2014 Change Net income
from continuing operations $45.2 $103.5 (56%)
Diluted net income per share from continuing operations
$0.20 $0.47 (57%) Adjusted pretax operating income
$147.3 $74.1 99% Adjusted diluted net
operating income per share * $0.40 $0.23 74%
Revenues $330.4 $247.4 34% Book value per
share $11.28 $8.29 36%
* Adjusted diluted net operating income
per share is calculated using the company’s statutory tax rate.
“Radian delivered strong financial results in the second
quarter, driven by positive trends and solid performance for our
two business segments,” said Radian’s Chief Executive Officer S.A.
Ibrahim. “We also took actions in the quarter to simplify and
strengthen Radian’s capital structure in a way that will reduce our
overall cost of capital, improve the maturity profile of our debt
and focus on long-term growth.”
SECOND QUARTER HIGHLIGHTS AND RECENT EVENTS
Mortgage Insurance
- New mortgage insurance written (NIW)
was $11.8 billion for the quarter, compared to $9.4 billion in the
first quarter of 2015 and $9.3 billion in the prior-year quarter.
- Of the $11.8 billion in new business
written in the second quarter of 2015, 68 percent was written with
monthly premiums and 32 percent with single premiums. This compares
to a mix of 63 percent monthly premiums and 37 percent single
premiums in the first quarter of 2015.
- Refinances accounted for 23 percent of
total NIW in the second quarter of 2015, compared to 33 percent in
the first quarter of 2015, and 13 percent a year ago.
- NIW continued to consist of loans with
excellent risk characteristics.
- Total primary mortgage insurance in
force was $172.7 billion, compared to $172.1 billion as of March
31, 2015, and $165.0 billion as of June 30, 2014. Persistency,
which is the percentage of mortgage insurance in force that remains
on the company’s books after a twelve-month period, was 80.1
percent as of June 30, 2015, compared to 82.6 percent as of March
31, 2015, and 83.9 percent as of June 30, 2014.
- Total net premiums earned was $237.4
million, compared to $224.6 million for the quarter ended March 31,
2015, and $203.6 million for the quarter ended June 30, 2014. Net
premiums earned in the second quarter included
- $9.8 million of incremental premiums
earned from single premiums compared to the first quarter of 2015,
the majority of which related to prepayments that servicers had not
previously reported to Radian, and
- an accrual for a $5.8 million profit
commission based on experience to date for the company’s Second
Quota Share Reinsurance Transaction, where Radian expects to
exercise its option to recapture 50 percent of the ceded risk on
December 31, 2015. See press release Exhibit M for additional
details.
- The mortgage insurance provision for
losses was $31.6 million in the second quarter of 2015, compared to
$45.9 million in the first quarter of 2015, and $64.6 million in
the prior-year period.
- The loss ratio in the second quarter
was 13.3 percent, compared to 20.4 percent in the first quarter of
2015 and 31.7 percent in the second quarter of 2014.
- Mortgage insurance loss reserves were
$1.2 billion as of June 30, 2015, compared to $1.4 billion as of
March 31, 2015, and $1.7 billion as of June 30, 2014.
- Primary reserve per primary default
(excluding IBNR and other reserves) was $27,279 as of June 30,
2015. This compares to primary reserve per primary default of
$28,423 as of March 31, 2015, and $26,024 as of June 30, 2014.
- The total number of primary delinquent
loans decreased by 7 percent in the second quarter from the first
quarter of 2015, and by 23 percent from the second quarter of 2014.
The primary mortgage insurance delinquency rate decreased to 4.3
percent in the second quarter of 2015, compared to 4.6 percent in
the first quarter of 2015, and 5.8 percent in the second quarter of
2014.
- Total mortgage insurance claims paid
were $212.0 million in the second quarter, compared to $207.1
million in the first quarter, and $240.3 million in the second
quarter of 2014. Claims paid in the second quarter of 2015 include
$75.6 million of claims paid relating to the September 2014 BofA
Settlement Agreement. The company continues to expect mortgage
insurance net claims paid for the full-year 2015 of approximately
$600 – $700 million. This includes a total of approximately $250
million of claims related to the BofA Settlement Agreement, of
which $174.6 million have already been paid.
- As of June 30, 2015, Radian Guaranty
would be able to immediately comply with the financial requirements
of the Private Mortgage Insurer Eligibility Requirements (PMIERs)
developed by Fannie Mae and Freddie Mac as adopted on April 17,
2015, and that come into effect on December 31, 2015, by utilizing
approximately $330 million of existing holding company liquidity.
This assumes that the company converts approximately $80 million of
existing liquid assets, which represent the cash surrender value of
Radian’s company-owned life insurance policies, into
PMIERs-compliant Available Assets (as defined in the PMIERs) and
receives, as expected, full PMIERs benefit of approximately $145
million for its outstanding quota-share reinsurance
arrangements.
Mortgage and Real Estate Services
- On June 30, 2014, Radian completed the
acquisition of Clayton Holdings LLC, a leading provider of
risk-based analytics, residential loan due diligence, consulting,
surveillance and staffing solutions. The company also provides
customized Real Estate Owned (REO) asset management and
single-family rental services through its Green River Capital
subsidiary; advanced Automated Valuation Models, Broker Price
Opinions and technology solutions to monitor loan portfolio
performance, acquire and track non-performing loans, and value and
sell residential real estate through its Red Bell Real Estate
subsidiary; and a global reach through its Clayton EuroRisk
subsidiary.
- Total revenues for the Services segment
were $44.6 million and gross profit was $19.1 million in the second
quarter of 2015. This compares to total revenues of $31.5 million
and gross profit of $12.3 million in the first quarter of
2015.
- In July, Clayton introduced an Asset
Representations Reviewer service to help issuers of asset-backed
securities, including auto finance, credit card, student loan and
equipment-leasing issuers, comply with the requirements of the
Securities and Exchange Commission’s amendments to Regulation AB.
Clayton plans to leverage its knowledge of underwriting, loan
document review and surveillance, and the company’s proprietary
technology to provide consulting services on testing procedure
design, help clients specify the role of the asset reviewer, and
perform asset review pilot testing.
Expenses and Discontinued Operations
- Other operating expenses were $67.7
million in the second quarter, compared to $53.8 million in the
first quarter of 2015, and $60.8 million in the second quarter of
last year. Operating expenses in the second quarter of 2015 were
primarily driven by variable compensation expenses related to
long-term incentive awards that matured in June 2015; compensation
expenses related to the acquisition by Clayton of Red Bell Real
Estate; and an increase in mortgage insurance-related expenses due
to higher volume.
- Income from discontinued operations,
net of tax, for the quarter ended June 30, 2015, was $4.9 million,
compared to $0.5 million for the quarter ended March 31, 2015.
Results from discontinued operations for the quarter were driven by
the recognition of investment gains that were deferred in other
comprehensive income and recognized as a result of the sale of
Radian Asset to Assured Guaranty Corp., a subsidiary of Assured
Guaranty Ltd., on April 1, 2015. Details regarding the assets and
liabilities associated with discontinued operations may be found on
press release Exhibit D.
CAPITAL AND LIQUIDITY UPDATE
Radian Group maintains approximately $735 million of currently
available liquidity.
- Radian completed a series of actions in
the second quarter to strengthen the company’s capital structure,
including to reduce its overall cost of capital, improve its
maturity profile and facilitate improved credit ratings. The
capital actions had four components:
- Radian paid $127 million in cash and
delivered 28.4 million shares for a total consideration value of
$657 million to purchase an aggregate face value of $389 million of
Radian’s 2017 Convertible Notes.
- In connection with the purchase of the
convertible notes, Radian terminated a corresponding portion of the
Capped Call it had entered into in 2010 in connection with the
initial issuance of its 2017 Convertible Notes, for proceeds to
Radian of $12 million in cash and 2.3 million shares of Radian
common stock.
- The purchase of the convertible notes
was funded by the issuance of Senior Notes with a coupon of 5.25%
and a maturity date of 2020, resulting in net proceeds of $343
million.
- A portion of the proceeds generated
from the issuance of the Senior Notes was used to enter into an
Accelerated Share Repurchase Program (ASR), in order to reduce the
dilutive impact of the shares issued in connection with the
purchase of the convertible notes. The ASR was executed for a cash
payment of $202 million in exchange for 9.2 million intial shares
and an estimated additional 1.6 million shares upon completion of
the ASR, assuming an average stock price of $18.68.
As noted above, these actions resulted in a loss on induced
conversion and debt extinguishment of $91.9 million, an expected
reduction in the company’s annual interest expense of approximately
$16 million, and an expected increase in fully diluted share count
of approximately 2.8 million shares. Additional details related to
these capital actions may be found on Slide 11 of the second
quarter presentation slides.
- Book value per share at June 30, 2015,
was $11.28, compared to $11.53 at March 31, 2015. The decrease in
book value from the first quarter of 2015 was related to the
issuance of shares resulting from the capital actions noted
above.
- As of June 30, 2015, Radian Guaranty’s
risk-to-capital ratio was 16.5:1 and statutory capital was $2.0
billion.
- As of June 30, 2015, a total of $2.7
billion of risk in force outstanding had been ceded under quota
share reinsurance agreements in order to proactively manage Radian
Guaranty’s risk-to-capital position. Radian has ceded the maximum
amount of NIW under these agreements and has not ceded any premium
on new business in 2015. As discussed above, net premiums earned in
the second quarter included an accrual for a $5.8 million profit
commission based on experience to date for the company’s Second
Quota Share Reinsurance Transaction, where Radian expects to
exercise its option to recapture 50 percent of the ceded risk on
December 31, 2015.
CONFERENCE CALL
Radian will discuss second quarter financial results in a
conference call today, Wednesday, July 22, 2015, at 10:00 a.m.
Eastern time. The conference call will be broadcast live over the
Internet at http://www.radian.biz/page?name=Webcasts or at
www.radian.biz. The call may also be accessed by dialing
800.230.1951 inside the U.S., or 612.332.0107 for international
callers, using passcode 364879 or by referencing Radian.
A replay of the webcast will be available on the Radian website
approximately two hours after the live broadcast ends for a period
of one year. A replay of the conference call will be available
approximately two and a half hours after the call ends for a period
of two weeks, using the following dial-in numbers and passcode:
800.475.6701 inside the U.S., or 320.365.3844 for international
callers, passcode 364879.
In addition to the information provided in the company’s
earnings news release, other statistical and financial information,
which is expected to be referred to during the conference call,
will be available on Radian's website under Investors >Quarterly
Results, or by clicking on
http://www.radian.biz/page?name=QuarterlyResults.
NON-GAAP FINANCIAL MEASURES
Radian believes that adjusted pretax operating income and
adjusted diluted net operating income per share (non-GAAP measures)
facilitate evaluation of the company’s fundamental financial
performance and provide relevant and meaningful information to
investors about the ongoing operating results of the company. On a
consolidated basis, these measures are not recognized in accordance
with accounting principles generally accepted in the United States
of America (GAAP) and should not be viewed as alternatives to GAAP
measures of performance. The measures described below have been
established in order to increase transparency for the purpose of
evaluating the company’s core operating trends and enabling more
meaningful comparisons with Radian’s competitors.
Adjusted pretax operating income is defined as earnings
excluding the impact of certain items that are not viewed as part
of the operating performance of the company’s primary activities,
or not expected to result in an economic impact equal to the amount
reflected in pretax income (loss) from continuing operations.
Adjusted diluted net operating income per share represents a
diluted net income per share calculation using as its basis
adjusted pretax operating income, net of taxes at the company’s
statutory tax rate for the period. See press release Exhibit F or
Radian’s website for a description of these items, as well as
Exhibit G for reconciliations to consolidated GAAP measures.
ABOUT RADIAN
Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia,
provides private mortgage insurance, risk management products and
real estate services to financial institutions. Radian offers
products and services through two business segments:
- Mortgage Insurance, through its
principal mortgage insurance subsidiary Radian Guaranty Inc. This
private mortgage insurance protects lenders from default-related
losses, facilitates the sale of low-downpayment mortgages in the
secondary market and enables homebuyers to purchase homes more
quickly with downpayments less than 20%.
- Mortgage and Real Estate Services,
through its principal services subsidiary Clayton, as well as Green
River Capital and Red Bell Real Estate. These solutions include
information and services that financial institutions, investors and
government entities use to evaluate, acquire, securitize, service
and monitor loans and asset-backed securities.
Additional information may be found at www.radian.biz.
FINANCIAL RESULTS AND SUPPLEMENTAL INFORMATION
CONTENTS
(Unaudited)
For trend information on all schedules, refer to Radian’s
quarterly financial statistics at
http://www.radian.biz/page?name=FinancialReportsCorporate.
Exhibit A: Condensed Consolidated Statements of Operations
Trend Schedule Exhibit B: Net Income Per Share Trend Schedule
Exhibit C: Condensed Consolidated Balance Sheets Exhibit D:
Discontinued Operations Exhibit E: Segment Information Exhibit F:
Definition of Consolidated Non-GAAP Financial Measure Exhibit G:
Consolidated Non-GAAP Financial Measure Reconciliations Exhibit H:
Mortgage Insurance Supplemental
Information New Insurance Written
Exhibit I:
Mortgage Insurance Supplemental
Information Insurance in Force and Risk in Force by Product,
Statutory Capital Ratios
Exhibit J:
Mortgage Insurance Supplemental
Information Risk in Force by FICO, LTV and Policy Year
Exhibit K:
Mortgage Insurance Supplemental
Information Claims and Reserves
Exhibit L:
Mortgage Insurance Supplemental
Information Default Statistics
Exhibit M:
Mortgage Insurance Supplemental
Information Captives, QSR and Persistency
Exhibit N: Mortgage and Real Estate Services Supplemental
Information
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations Trend
Schedule Exhibit A 2015 2014
(In thousands,
except per share amounts)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Revenues: Net premiums earned - insurance $
237,437 $ 224,595 $ 224,293 $ 217,827 $ 203,646
Services
revenue 43,503 30,630 34,450 42,243 —
Net investment
income 19,285 17,328 16,531 17,143 16,663
Net gains
(losses) on investments and other financial instruments
28,448 16,779 17,983 (6,294 ) 25,332
Other income
1,743 1,331 1,793 1,162 1,739
Total revenues 330,416 290,663
295,050 272,081 247,380
Expenses: Provision for losses 32,560 45,028
82,867 48,942 64,648
Policy acquisition costs 6,963
7,750 6,443 4,240 6,746
Direct cost of services
23,520 19,253 19,709 23,896 —
Other operating
expenses 67,731 53,774 85,800 51,225 60,751
Interest
expense 24,501 24,385 24,200 23,989 22,348
Loss on
induced conversion and debt extinguishment 91,876 — — —
—
Amortization and impairment of intangible assets
3,281 3,023 5,354 3,294 —
Total expenses 250,432 153,213 224,373
155,586 154,493
Pretax income from
continuing operations 79,984 137,450 70,677 116,495
92,887
Income tax provision (benefit) 34,791
45,723 (807,349 ) (15,536 ) (10,650 )
Net income from
continuing operations 45,193 91,727 878,026 132,031
103,537
Income (loss) from discontinued operations, net of
tax 4,855 530 (449,691 ) 21,559
71,296
Net income $ 50,048 $
92,257 $ 428,335 $ 153,590 $ 174,833
Diluted net income per share: Net income from
continuing operations $ 0.20 $ 0.39 $ 3.63 $ 0.58
$ 0.47
Income (loss) from discontinued operations, net of
tax 0.02 — (1.85 ) 0.09 0.31
Net income $ 0.22 $ 0.39 $ 1.78
$ 0.67 $ 0.78
Selected Mortgage
Insurance Key Ratios Loss ratio (1) 13.3 %
20.4 % 36.9 % 22.5 % 31.7 %
Expense ratio - NPE basis (1)
25.8 % 23.0 % 36.9 % 21.3 % 29.5 %
Expense ratio -
NPW basis (2) 24.4 % 21.3 % 33.8 % 18.9 % 27.1 %
(1) Calculated on a GAAP basis using net premiums earned
(“NPE”). (2) Calculated on a GAAP basis using net premiums
written (“NPW”).
On April 1, 2015, Radian Guaranty completed the previously
disclosed sale of 100% of the issued and outstanding shares of
Radian Asset Assurance to Assured, pursuant to the Radian Asset
Assurance Stock Purchase Agreement dated as of December 22, 2014.
As a result, the operating results of Radian Asset Assurance are
classified as discontinued operations for all periods presented in
our condensed consolidated statements of operations. See Exhibit D
for additional information on discontinued operations.
Radian Group Inc. and Subsidiaries Net Income Per
Share Trend Schedule Exhibit B The calculation
of basic and diluted net income per share was as follows:
2015 2014
(In thousands,
except per share amounts)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Net
income from continuing operations: Net income from
continuing operations—basic $ 45,193 $ 91,727 $
878,026 $ 132,031 $ 103,537
Adjustment for dilutive Convertible
Senior Notes due 2019, net of tax (1) 3,707 3,673
3,641 5,552 5,503
Net income from
continuing operations—diluted $ 48,900 $
95,400 $ 881,667 $ 137,583 $ 109,040
Net income: Net income from continuing
operations—basic $ 45,193 $ 91,727 $ 878,026 $
132,031 $ 103,537
Income (loss) from discontinued operations,
net of tax 4,855 530 (449,691 ) 21,559
71,296
Net income—basic 50,048 92,257 428,335
153,590 174,833
Adjustment for dilutive Convertible Senior Notes
due 2019, net of tax (1) 3,707 3,673 3,641
5,552 5,503
Net income—diluted $
53,755 $ 95,930 $ 431,976 $ 159,142
$ 180,336
Average common shares
outstanding—basic 193,112 191,224 191,053 191,050
182,583
Dilutive effect of Convertible Senior Notes due 2017
12,438 10,886 10,590 6,342 7,599
Dilutive effect of
Convertible Senior Notes due 2019 37,736 37,736 37,736
37,736 37,736
Dilutive effect of stock-based compensation
arrangements (2) 3,364 3,202 3,422
2,939 2,861
Adjusted average common shares
outstanding—diluted 246,650 243,048
242,801 238,067 230,779
Net income per
share:
Basic: Net income from continuing operations $
0.23 $ 0.48 $ 4.60 $ 0.69 $ 0.57
Income (loss) from
discontinued operations, net of tax 0.03 —
(2.36 ) 0.11 0.39
Net income $ 0.26
$ 0.48 $ 2.24 $ 0.80 $ 0.96
Diluted: Net income from continuing operations
$ 0.20 $ 0.39 $ 3.63 $ 0.58 $ 0.47
Income (loss)
from discontinued operations, net of tax 0.02 —
(1.85 ) 0.09 0.31
Net income $
0.22 $ 0.39 $ 1.78 $ 0.67 $ 0.78
(1)
As applicable, includes coupon
interest, amortization of discount and fees, and other changes in
income or loss that would result from the assumed
conversion.
(2)
The following number of shares of our
common stock equivalents issued under our stock-based compensation
arrangements were not included in the calculation of diluted net
income per share because they were anti-dilutive:
2015 2014
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Shares
of common stock equivalents 264 540 542 557 1,484
Radian Group Inc. and
Subsidiaries Condensed Consolidated Balance Sheets
Exhibit C June 30, March 31, December 31, September
30, June 30,
(In thousands,
except per share data)
2015 2015 2014 2014 2014
Assets:
Investments $ 4,309,148 $ 3,621,646 $
3,629,299 $ 3,529,310 $ 3,351,792
Cash 51,381 57,204
30,465 30,491 42,379
Restricted cash 12,633 14,220
14,031 16,509 13,361
Accounts and notes receivable
72,093 64,405 85,792 69,029 52,090
Deferred income taxes,
net 651,238 649,996 700,201 — —
Goodwill and other
intangible assets, net 290,640 293,798 288,240 293,632
296,948
Other assets 349,371 340,276 357,864 364,665
366,752
Assets held for sale — 1,755,873
1,736,444 1,637,233 1,789,401
Total
assets $ 5,736,504 $ 6,797,418 $
6,842,336 $ 5,940,869 $ 5,912,723
Liabilities and stockholders’ equity: Unearned
premiums $ 665,947 $ 657,555 $ 644,504 $ 625,269
$ 597,860
Reserve for losses and loss adjustment expenses
1,204,792 1,384,714 1,560,032 1,591,150 1,717,314
Long-term debt 1,224,892 1,202,535 1,192,299
1,182,247 1,172,569
Other liabilities 278,929 310,642
326,743 314,395 316,796
Liabilities held for sale —
966,078 947,008 493,407 523,937
Total liabilities 3,374,560 4,521,524
4,670,586 4,206,468 4,328,476
Equity
component of currently redeemable convertible senior notes
8,546 68,982 74,690 — —
Common stock
226 209 209 209 209
Additional paid-in capital
1,816,545 1,648,436 1,638,552 1,706,222 1,707,655
Retained earnings (deficit) 548,161 498,593 406,814
(21,044 ) (174,634 )
Accumulated other comprehensive (loss)
income (11,534 ) 59,674 51,485
49,014 51,017
Total common stockholders’
equity 2,353,398 2,206,912 2,097,060
1,734,401 1,584,247
Total liabilities and
stockholders’ equity $ 5,736,504 $
6,797,418 $ 6,842,336 $ 5,940,869 $ 5,912,723
Shares outstanding 208,587 191,416
191,054 191,050 191,014
Book value per share $
11.28 $ 11.53 $ 10.98 $ 9.08 $ 8.29
Radian Group Inc. and
Subsidiaries
Discontinued Operations
Exhibit D
The income from discontinued operations, net of tax consisted of
the following components for the periods indicated:
2015
(In
thousands)
Qtr 2 Qtr 1
Net premiums earned $
— $ 1,007
Net investment income — 9,153
Net
gains on investments and other financial instruments
7,818 13,668
Change in fair value of derivative
instruments — 2,625
Total revenues
7,818 26,453
Provision for
losses — 502
Policy acquisition costs —
(191 )
Other operating expense — 4,107
Total expenses — 4,418
Equity
in net loss of affiliates — (13 )
Income from
operations of businesses held for sale 7,818 22,022
Loss on sale (350 ) (13,930 )
Income tax
provision 2,613 7,562
Income from
discontinued operations, net of tax $ 4,855
$ 530
Radian Group Inc. and
Subsidiaries
Segment Information
Exhibit E (page 1 of 2)
Summarized financial information concerning our operating
segments as of and for the periods indicated, is as follows. For a
definition of adjusted pretax operating income and reconciliations
to consolidated GAAP measures, see Exhibits F and G.
Mortgage Insurance 2015 2014
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Net
premiums written - insurance $ 251,082 $ 241,908
$ 244,506 $ 245,775 $ 221,947
Increase in unearned premiums
(13,645 ) (17,313 ) (20,213 ) (27,948 ) (18,301 )
Net premiums earned - insurance 237,437 224,595
224,293 217,827 203,646
Net investment income (1)
19,285 17,328 16,531 17,143 16,663
Other income (1)
1,743 1,331 1,668 1,037 1,620
Total 258,465 243,254 242,492
236,007 221,929
Provision for
losses 31,637 45,851 83,649 48,942 64,648
Change in
expected economic loss or recovery for consolidated VIEs
— — (16 ) (190 ) 180
Policy acquisition costs
6,963 7,750 6,443 4,240 6,746
Other operating expenses
before corporate allocations 41,853 34,050
62,591 33,679 36,356
Total (2)
80,453 87,651 152,667 86,671
107,930
Adjusted pretax operating income before
corporate allocations 178,012 155,603 89,825 149,336
113,999
Allocation of corporate operating expenses (1)
12,516 9,758 13,729 8,520 17,021
Allocation of interest
expense (1) 20,070 19,953 19,760
19,565 22,348
Adjusted pretax operating income
$ 145,426 $ 125,892 $ 56,336 $
121,251 $ 74,630
Services 2015
2014
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Services revenue
$ 44,595 $ 31,532 $ 34,466 $ 42,243 $ —
Other
income — — 891 125 119
Total (2) 44,595 31,532 35,357
42,368 119
Direct cost of
services 25,501 19,253 19,709 23,896 —
Other
operating expenses before corporate allocations 11,522
8,857 8,360 9,054 642
Total 37,023 28,110 28,069
32,950 642
Adjusted pretax operating income
(loss) before corporate allocations 7,572 3,422 7,288
9,418 (523 )
Allocation of corporate operating expenses
1,307 981 740 404 —
Allocation of interest expense
4,431 4,432 4,440 4,424 —
Adjusted pretax operating income (loss) $
1,834 $ (1,991 ) $ 2,108 $ 4,590 $ (523
)
(1)
For periods prior to the quarter ended
June 30, 2015, includes certain corporate income and expenses that
have been reallocated from our prior financial guaranty segment to
the Mortgage Insurance segment and that were not reclassified to
discontinued operations.
(2)
Inter-segment information:
2015 2014
Qtr 2 Qtr 1 Qtr 4
Qtr 3 Qtr 2
Inter-segment expense included in
Mortgage Insurance segment $ 1,092 $ 902 $ 782 $
— $ —
Inter-segment revenue included in Services segment
1,092 902 782 — —
Radian Group Inc. and
Subsidiaries Segment Information Exhibit E (page 2 of
2) At June 30, 2015 Mortgage
(In
thousands)
Insurance Services Total Total assets
$ 5,384,224 $ 352,280 $
5,736,504 At December 31, 2014 Mortgage
(In
thousands)
Insurance Services Total
Assets held for sale (1) $ — $ — $
1,736,444
Total assets 4,769,014 336,878 6,842,336
(1) Assets held for sale are not
part of the Mortgage Insurance or Services segments.
Radian Group Inc. and
Subsidiaries
Definition of Consolidated Non-GAAP
Financial Measure
Exhibit F (page 1 of 2)
Use of Non-GAAP Financial Measure
In addition to the traditional GAAP financial measures, we have
presented non-GAAP financial measures for the consolidated company,
“adjusted pretax operating income (loss)” and “adjusted diluted net
operating income (loss) per share,” among our key performance
indicators to evaluate our fundamental financial performance. These
non-GAAP financial measures align with the way the Company’s
business performance is evaluated by both management and the board
of directors. These measures have been established in order to
increase transparency for the purposes of evaluating our core
operating trends and enabling more meaningful comparisons with our
peers. Although on a consolidated basis “adjusted pretax operating
income (loss)” and “adjusted diluted net operating income (loss)
per share” are non-GAAP financial measures, we believe these
measures aid in understanding the underlying performance of our
operations. Our senior management, including our Chief Executive
Officer (the Company’s chief operating decision maker), uses
adjusted pretax operating income (loss) as our primary measure to
evaluate the fundamental financial performance of the Company’s
business segments and to allocate resources to the segments.
Adjusted pretax operating income (loss) is defined as GAAP
pretax income (loss) from continuing operations excluding the
effects of net gains (losses) on investments and other financial
instruments, loss on induced conversion and debt extinguishment,
acquisition-related expenses, amortization and impairment of
intangible assets and net impairment losses recognized in earnings.
Adjusted diluted net operating income (loss) per share is
calculated by dividing (i) adjusted pretax operating income (loss)
attributable to common shareholders, net of taxes computed using
the company’s statutory tax rate, by (ii) the sum of the weighted
average number of common shares outstanding and all dilutive
potential common shares outstanding. Interest expense on
convertible debt, share dilution from convertible debt and the
impact of stock-based compensation arrangements have been reflected
in the per share calculations consistent with the accounting
standard regarding earnings per share, whenever the impact is
dilutive.
Although adjusted pretax operating income (loss) excludes
certain items that have occurred in the past and are expected to
occur in the future, the excluded items represent those that are:
(1) not viewed as part of the operating performance of our primary
activities; or (2) not expected to result in an economic impact
equal to the amount reflected in pretax income (loss) from
continuing operations. These adjustments, along with the reasons
for their treatment, are described below.
(1) Net gains (losses) on investments and
other financial instruments. The recognition of realized investment
gains or losses can vary significantly across periods as the
activity is highly discretionary based on the timing of individual
securities sales due to such factors as market opportunities, our
tax and capital profile and overall market cycles. Unrealized
investment gains and losses arise primarily from changes in the
market value of our investments that are classified as trading.
These valuation adjustments may not necessarily result in economic
gains or losses.
Trends in the profitability of our
fundamental operating activities can be more clearly identified
without the fluctuations of these realized and unrealized gains or
losses. We do not view them to be indicative of our fundamental
operating activities. Therefore, these items are excluded from our
calculation of adjusted pretax operating income (loss). However, we
include the change in expected economic loss or recovery associated
with our consolidated VIEs, if any, in the calculation of adjusted
pretax operating income (loss).
(2) Loss on induced conversion and debt
extinguishment. Gains or losses on early extinguishment of debt or
losses incurred to induce conversion of convertible debt prior to
maturity are discretionary activities that are undertaken in order
to take advantage of market opportunities to strengthen our
financial position; therefore, these activities are not viewed as
part of our operating performance. Such transactions do not reflect
expected future operations and do not provide meaningful insight
regarding our current or past operating trends. Therefore, these
items are excluded from our calculation of adjusted pretax
operating income (loss).
(3) Acquisition-related expenses.
Acquisition-related expenses represent the costs incurred to effect
an acquisition of a business (i.e., a business combination).
Because we pursue acquisitions on a strategic and selective basis
and not in the ordinary course of our business, we do not view
acquisition-related expenses as a consequence of a primary business
activity. Therefore, we do not consider these expenses to be part
of our operating performance and they are excluded from our
calculation of adjusted pretax operating income (loss).
Radian Group Inc. and
Subsidiaries
Definition of Consolidated Non-GAAP
Financial Measure
Exhibit F (page 2 of 2)
(4) Amortization and impairment of intangible
assets. Amortization of intangible assets represents the periodic
expense required to amortize the cost of intangible assets over
their estimated useful lives. Intangible assets with an indefinite
useful life are also periodically reviewed for potential
impairment, and impairment adjustments are made whenever
appropriate. These charges are not viewed as part of the operating
performance of our primary activities and therefore are excluded
from our calculation of adjusted pretax operating income
(loss).
(5) Net impairment losses recognized in
earnings. The recognition of net impairment losses on investments
can vary significantly in both size and timing, depending on market
credit cycles. We do not view these impairment losses to be
indicative of our fundamental operating activities. Therefore,
whenever these losses occur, we exclude them from our calculation
of adjusted pretax operating income (loss).
See Exhibit G for the reconciliation of our non-GAAP financial
measures for the consolidated company, adjusted pretax operating
income and adjusted diluted net operating income per share, to the
most comparable GAAP measures, pretax income from continuing
operations and net income per share from continuing operations,
respectively.
Total adjusted pretax operating income (loss) and adjusted
diluted net operating income (loss) per share are not measures of
total profitability, and therefore should not be viewed as
substitutes for GAAP pretax income (loss) from continuing
operations or net income (loss) per share from continuing
operations. Our definitions of adjusted pretax operating income
(loss) and adjusted diluted net operating income (loss) per share
may not be comparable to similarly-named measures reported by other
companies.
Radian Group Inc. and Subsidiaries Consolidated
Non-GAAP Financial Measure Reconciliations
Exhibit G (page 1 of 2)
Reconciliation of Adjusted Pretax
Operating Income (Loss) to Consolidated Pretax Income from
Continuing Operations
2015 2014
(In
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Adjusted pretax operating income (loss): Mortgage
Insurance (1) $ 145,426 $ 125,892 $ 56,336 $
121,251 $ 74,630
Services (2) 1,834 (1,991 )
2,108 4,590 (523 )
Total adjusted pretax operating
income 147,260 123,901 58,444
125,841 74,107
Net gains (losses) on
investments and other financial instruments (3) 28,448
16,779 17,967 (6,484 ) 25,512
Loss on induced conversion and
debt extinguishment (91,876 ) — — — —
Acquisition-related expenses (4) (567 ) (207 )
(380 ) 432 (6,732 )
Amortization and impairment of intangible
assets (4) (3,281 ) (3,023 ) (5,354 ) (3,294 ) —
Consolidated pretax income from continuing operations
$ 79,984 $ 137,450 $ 70,677 $
116,495 $ 92,887
(1)
Includes certain corporate income and
expenses that have been reallocated from our prior financial
guaranty segment to the Mortgage Insurance segment and that were
not reclassified to discontinued operations.
(2)
Includes the acquisition of Clayton
Holdings, effective June 30, 2014. Also, effective with the fourth
quarter of 2014, the Services segment undertook the management
responsibilities of certain additional loan servicer surveillance
functions previously considered part of the Mortgage Insurance
segment. As a result, these activities are now reported in the
Services segment for all periods presented.
(3)
This line item includes a de minimis
amount of expected economic loss or recovery associated with our
previously consolidated VIEs that is included in adjusted pretax
operating income above.
(4)
Please see Exhibit F for the definition
of this line item.
Radian Group Inc. and Subsidiaries Consolidated
Non-GAAP Financial Measure Reconciliations Exhibit G (page 2
of 2)
Reconciliation of Adjusted Diluted Net
Operating Income Per Share (1) to Net Income Per
Share from Continuing Operations
2015 2014
Qtr 2 Qtr 1 Qtr 4
Qtr 3 Qtr 2
Adjusted diluted net operating income
per share $ 0.40 $ 0.35 $ 0.17
$ 0.37 $ 0.23
After tax per share
impact: Net gains (losses) on investments and other
financial instruments 0.07 0.04 0.05 (0.02 ) 0.08
Loss on induced conversion and debt extinguishment
(0.28 ) — — — (0.01 )
Acquisition-related
expenses — — — — (0.02 )
Amortization and impairment
of intangible assets (0.01 ) (0.01 ) (0.01 )
(0.01 ) —
Difference between statutory and effective tax
rate 0.02 0.01 3.42 0.24 0.19
Net income per share from continuing
operations $ 0.20 $ 0.39 $ 3.63
$ 0.58 $ 0.47
(1) Calculated using the company’s
statutory tax rate.
On a consolidated basis, “adjusted pretax operating income” and
“adjusted diluted net operating income per share” are measures not
determined in accordance with GAAP. These measures are not
representative of total profitability, and therefore should not be
viewed as substitutes for GAAP pretax income from continuing
operations or net income per share from continuing operations. Our
definitions of adjusted pretax operating income and adjusted
diluted net operating income per share may not be comparable to
similarly-named measures reported by other companies. See Exhibit F
for additional information on our consolidated non-GAAP financial
measures.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information - New Insurance Written
Exhibit H 2015 2014
($ in
millions)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Total primary new insurance written $ 11,751
$ 9,385 $ 10,009 $ 11,210 $ 9,322
Percentage of
primary new insurance written by FICO score
>=740 63.0 % 63.6 % 60.2 % 61.6 % 61.9 %
680-739
30.8 30.3 32.6 31.2 31.4
620-679
6.2 6.1 7.2 7.2 6.7
Total Primary 100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary new insurance written
Monthly premiums 68 % 63 % 69 % 72 % 76 %
Single premiums 32 % 37 % 31 % 28 % 24 %
Refinances 23 % 33 % 22 % 16 % 13 %
LTV 95.01% and above 3.2 % 1.8 % 0.5 %
0.3 % 0.2 %
90.01% to 95.00% 49.4 % 48.4 %
51.7 % 53.7 % 53.9 %
85.01% to 90.00% 34.0 %
33.3 % 33.2 % 33.5 % 34.5 %
85.00% and below 13.4
% 16.5 % 14.6 % 12.5 % 11.4 %
Radian Group
Inc. and Subsidiaries Mortgage Insurance Supplemental
Information - Primary Insurance in Force and Risk in Force by
Product, Statutory Capital Ratios Exhibit I
June 30, March 31, December 31,
September 30, June 30,
($ in millions) 2015 2015 2014
2014 2014
Primary insurance
in force (1)
Flow $ 164,137 $ 162,832 $ 162,302 $ 159,770 $
155,604
Structured 8,555 9,309 9,508
9,452 9,385
Total Primary $
172,692 $ 172,141 $ 171,810 $ 169,222
$ 164,989
Prime $ 161,397
$ 160,452 $ 159,647 $ 156,581 $ 151,865
Alt-A 6,857
7,122 7,412 7,709 8,014
A minus and below 4,438
4,567 4,751 4,932 5,110
Total
Primary $ 172,692 $ 172,141 $
171,810 $ 169,222 $ 164,989
Primary risk in
force (1) (2)
Flow $ 41,706 $ 41,256 $ 41,071 $ 40,337 $
39,139
Structured 1,957 2,133 2,168
2,150 2,131
Total Primary $
43,663 $ 43,389 $ 43,239 $ 42,487
$ 41,270
Flow Prime $
39,781 $ 39,251 $ 38,977 $ 38,156 $ 36,861
Alt-A
1,191 1,243 1,295 1,350 1,411
A minus and below
734 762 799 831 867
Total Flow $ 41,706 $ 41,256 $
41,071 $ 40,337 $ 39,139
Structured Prime $ 1,182 $ 1,341 $
1,349 $ 1,302 $ 1,263
Alt-A 397 410 425 441 452
A
minus and below 378 382 394
407 416
Total Structured $ 1,957
$ 2,133 $ 2,168 $ 2,150 $ 2,131
Total Prime $ 40,963 $ 40,592 $
40,326 $ 39,458 $ 38,124
Alt-A 1,588 1,653 1,720
1,791 1,863
A minus and below 1,112 1,144
1,193 1,238 1,283
Total Primary
$ 43,663 $ 43,389 $ 43,239 $
42,487 $ 41,270
Statutory Capital
Ratios Risk to capital ratio-Radian Guaranty only
16.5 :1
(3)
17.1 :1 17.9 :1 18.4 :1 18.7 :1
Risk to capital ratio-Mortgage
Insurance combined 18.0 :1
(3)
19.1 :1 20.3 :1 21.2 :1 22.1 :1
(1)
Includes amounts ceded under our
reinsurance agreements, as well as amounts related to the Freddie
Mac Agreement.
(2)
Does not include pool risk in force or
other risk in force, which combined represent less than 4.0% of our
total risk in force for all periods presented.
(3)
Preliminary.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information - Percentage of Primary Risk in
Force by FICO, LTV and Policy Year Exhibit J
June 30, March 31,
December 31, September 30, June 30,
($ in millions)
2015 2015 2014 2014 2014
Percentage of
primary risk in force by FICO score
Flow >=740 58.1 % 58.1 % 58.1 % 58.0
% 57.8 %
680-739 30.2 30.0 29.7 29.5 29.3
620-679 10.5 10.6 10.8 11.0 11.3
<=619
1.2 1.3 1.4 1.5 1.6
Total Flow 100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Structured >=740 28.7
% 31.1 30.3 % 28.7 % 27.0 %
680-739 27.9 28.1
28.5 28.3 28.6
620-679 25.4 24.1 24.3 25.4 26.3
<=619 18.0 16.7 16.9 17.6
18.1
Total Structured 100.0 %
100.0 % 100.0 % 100.0 % 100.0 %
Total >=740
56.7 % 56.8 % 56.7 % 56.6 % 56.2 %
680-739
30.1 29.8 29.6 29.4 29.3
620-679 11.2 11.3
11.6 11.7 12.1
<=619 2.0 2.1 2.1
2.3 2.4
Total Primary 100.0
% 100.0 % 100.0 % 100.0 % 100.0 %
Percentage of
primary risk in force by LTV
95.01% and above 7.6 % 7.9 % 8.2 % 8.6 % 9.3 %
90.01% to 95.00% 49.0 48.2 47.5 46.5 45.1
85.01%
to 90.00% 34.6 35.0 35.4 35.8 36.3
85.00% and
below 8.8 8.9 8.9 9.1 9.3
Total 100.0 % 100.0 % 100.0 % 100.0 %
100.0 %
Percentage of
primary risk in force by policy year
2005 and prior
7.3 % 7.8 % 8.2 % 8.8 % 9.5 %
2006
4.2 4.4 4.6 4.9 5.2
2007
9.6 10.2 10.6 11.1 11.8
2008
7.0 7.5 7.9 8.3 8.9
2009
2.0 2.3 2.5 2.8 3.1
2010
1.7 2.0 2.1 2.3 2.6
2011
3.5 3.9 4.2 4.5 5.0
2012
13.0 14.2 15.1 16.2 17.5
2013
20.8 22.4 23.8 25.1 26.6
2014
19.0 20.0 21.0 16.0 9.8
2015
11.9 5.3 — — —
Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %
Primary risk in force on defaulted loans (1) $
1,753 $ 1,883 $ 2,089 $ 2,168 $ 2,270
(1) Excludes risk related to
loans subject to the Freddie Mac Agreement.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information - Claims and Reserves
Exhibit K 2015 2014
($ in
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
Net claims
paid Prime $ 83,489 $ 76,186 $ 74,342 $
104,440 $ 159,335
Alt-A 23,260 19,999 21,909 26,882
37,368
A minus and below 14,965 15,141
12,600 19,658 26,675
Total primary claims paid
121,714 111,326 108,851 150,980 223,378
Pool
10,798 8,874 8,086 8,880 16,362
Second-lien and other
(53 ) (111 ) 283 490 511
Subtotal
132,459 120,089 117,220 160,350 240,251
Impact of captive
terminations — (12,000 ) — — —
Impact of
settlements 79,557 99,006 — 13,500
—
Total $ 212,016 $ 207,095 $
117,220 $ 173,850 $ 240,251
Average claim paid
(1) Prime $ 48.1 $
44.0
$ 48.7 $ 49.2 $ 46.3
Alt-A 59.5
54.6
58.7 56.7 55.9
A minus and below 40.1
35.9
39.3 40.3 37.8
Total primary average claims paid 48.7
44.2
49.0 49.0 46.4
Pool 69.7
51.5
46.5 48.0 63.4
Second-lien and other (3.5 )
(12.3
) 7.6 18.9 16.5
Total $ 49.6 $
44.5
$ 48.2 $ 48.7 $ 47.0
Average primary claim paid (2)
$ 49.6 $
45.3
$ 50.4 $ 50.0 $ 47.4
Average total claim paid (2) $
50.4 $
45.5
$ 49.4 $ 49.6 $ 48.0
($ in thousands, except primary
reserve per
June 30, March 31, December 31, September 30, June 30,
primary default
amounts)
2015 2015 2014 2014 2014
Reserve for losses by
category Prime $ 562,918
$
640,919
$ 700,174 $ 721,811 $ 701,718
Alt-A 256,854
278,350
292,293 308,283 323,490
A minus and below 148,043
163,390
179,103 182,885 174,922
IBNR and other 125,038
167,204
223,114 212,908 326,821
LAE 48,141
53,210
56,164 52,690 50,071
Reinsurance recoverable (3)
11,677
13,365
26,665 21,201 22,458
Total primary
reserves 1,152,671
1,316,438
1,477,513 1,499,778 1,599,480
Pool
insurance 47,902
62,943
75,785 80,664 104,424
IBNR and other 891
1,227
1,775 2,468 4,621
LAE 2,353
3,051
3,542 3,434 4,180
Total pool reserves
51,146
67,221
81,102 86,566 113,225
Total 1st lien
reserves 1,203,817
1,383,659
1,558,615 1,586,344 1,712,705
Second-lien and other
975
1,055
1,417 1,787 1,976
Total reserves
$ 1,204,792
$
1,384,714
$ 1,560,032 $ 1,588,131 $ 1,714,681
1st lien reserve per default Primary reserve per primary
default excluding IBNR and other $ 27,279
$
28,423
$
27,683
$
27,477
$
26,024
(1)
Net of reinsurance recoveries and
without giving effect to the impact of captive terminations and
settlements.
(2)
Before reinsurance recoveries and
without giving effect to the impact of captive terminations and
settlements.
(3)
Primarily represents ceded losses on
captive transactions and quota share reinsurance
transactions.
Radian Group Inc. and Subsidiaries Mortgage
Insurance Supplemental Information - Default Statistics
Exhibit L June 30
March 31, December 31, September 30, June 30,
2015 2015 2014
2014 2014
Default Statistics Primary
Insurance:
Prime
Number of insured loans 802,719 801,332 797,436
783,414 764,508
Number of loans in default 23,237
25,114 28,246 28,963 30,012
Percentage of loans in default
2.89 % 3.13 % 3.54 % 3.70 % 3.93 %
Alt-A
Number of insured loans 35,927 37,468 38,953 40,319
41,846
Number of loans in default 6,949 7,480 8,136
8,629 9,299
Percentage of loans in default 19.34
% 19.96 % 20.89 % 21.40 % 22.22 %
A minus and
below
Number of insured loans 34,224 35,425 36,688 37,843
39,180
Number of loans in default 7,490 7,846 8,937
9,251 9,593
Percentage of loans in default 21.89
% 22.15 % 24.36 % 24.45 % 24.48 %
Total
Primary Number of insured loans 872,870 874,225
873,077 861,576 845,534
Number of loans in default (1)
37,676 40,440 45,319 46,843 48,904
Percentage of loans in
default 4.32 % 4.63 % 5.19 % 5.44 % 5.78 %
(1)
Excludes the following number of loans
subject to the Freddie Mac Agreement that are in default as we no
longer have claims exposure on these loans:
June 30 March 31,
December 31, September 30, June 30,
2015 2015 2014 2014 2014
Number of loans in default 3,246 3,715 4,467 4,824
5,238
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Captives, QSR and
Persistency Exhibit M 2015 2014
($ in
thousands)
Qtr 2 Qtr 1 Qtr 4 Qtr 3 Qtr 2
1st Lien
Captives
Premiums ceded to captives $ 2,700 $ 2,585 $
3,078 $ 3,096 $ 3,314
% of total premiums 1.1
% 1.1 % 1.3 % 1.3 % 1.5 %
Insurance in force included in
captives (1) 2.4 % 2.5 % 2.8 % 3.0 % 3.3 %
Risk in force included in captives (1) 2.2 %
2.4 % 2.7 % 2.9 % 3.1 %
Initial Quota
Share Reinsurance (“QSR”) Transaction
QSR ceded premiums written $ 3,822 $ 4,067 $
(4,801 ) $ 4,668 $ 5,046
% of premiums written 1.5
% 1.6 % (1.9 )% 1.8 % 2.1 %
QSR ceded premiums earned
$ 6,424 $ 6,018 $ (2,869 ) $ 6,578 $ 6,803
% of
premiums earned 2.6 % 2.5 % (1.2 )% 2.8 % 3.1 %
Ceding commissions $ 828 $ 880 $ 1,108 $ 1,166
$ 1,262
Risk in force included in QSR (2) $
954,673 $ 1,041,383 $ 1,105,545 $ 1,170,496 $ 1,234,975
Second QSR
Transaction
QSR ceded premiums written $ 395 $ 6,529 $
9,303 $ 9,082 $ 8,072
% of premiums written 0.2
% 2.6 % 3.7 % 3.5 % 3.4 %
QSR ceded premiums earned
$ 3,039 $ 8,768 $ 8,339 $ 7,699 $ 7,197
% of
premiums earned 1.2 % 3.6 % 3.6 % 3.3 % 3.3 %
Ceding commissions $ 2,154 $ 2,285 $ 3,256 $
3,179 $ 2,825
Risk in force included in QSR (2) $
1,440,312 $ 1,533,677 $ 1,615,554 $ 1,546,311 $ 1,447,088
Persistency (twelve months ended) (3) 80.1
% 82.6 % 84.2 % 84.3 % 83.9 %
(1)
Radian reinsures the middle layer risk
positions, while retaining a significant portion of the total risk
comprising the first loss and most remote risk positions.
(2)
Included in primary risk in
force.
(3)
Effective March 31, 2015, we refined
our persistency calculation to incorporate loan level detail rather
than aggregated portfolio data. Prior periods have been
recalculated and reflect the current calculation
methodology.
Radian Group Inc. and
Subsidiaries
Services Supplemental Information -
Gross Profit on Services
Exhibit N
The following table shows additional trend information for the
Services segment:
2015 2014
(In
thousands)
Qtr 2 Qtr 1 Qtr 4
Qtr 3
Services revenue $ 44,595 $ 31,532 $
34,466 $ 42,243
Direct cost of services 25,501
19,253 19,709 23,896
Gross profit on services
$ 19,094 $ 12,279 $ 14,757 $
18,347
The selected unaudited financial information presented below
represents unaudited quarterly historical information for the
businesses of Clayton Holdings LLC (“Clayton”) for periods prior to
our acquisition on June 30, 2014. Financial information for periods
after the acquisition is included in the table above and in Exhibit
E as part of our Services segment.
2013 2014
(In
thousands)
Qtr 1 Qtr 2 Qtr 3
Qtr 4 Qtr 1 Qtr 2
Services
revenue $ 37,041 $ 39,115 $ 32,718 $ 25,593 $ 28,043 $ 36,347
Direct cost of services 20,173 22,028 18,015
14,957 15,469 19,956
Gross profit on
services $ 16,868 $ 17,087 $ 14,703 $
10,636 $ 12,574 $ 16,391
FORWARD-LOOKING STATEMENTS
All statements in this report that address events, developments
or results that we expect or anticipate may occur in the future are
"forward-looking statements" within the meaning of Section 27A of
the Securities Act of 1933, Section 21E of the Exchange Act and the
U.S. Private Securities Litigation Reform Act of 1995. In most
cases, forward-looking statements may be identified by words such
as "anticipate," "may," "will," "could," "should," "would,"
"expect," "intend," "plan," "goal," "contemplate," "believe,"
"estimate," "predict," "project," "potential," "continue," "seek,"
"strategy," "future," "likely" or the negative or other variations
on these words and other similar expressions. These statements,
which may include, without limitation, projections regarding our
future performance and financial condition, are made on the basis
of management's current views and assumptions with respect to
future events. Any forward-looking statement is not a guarantee of
future performance and actual results could differ materially from
those contained in the forward-looking statement. These statements
speak only as of the date they were made, and we undertake no
obligation to update or revise any forward-looking statements,
whether as a result of new information, future events or otherwise.
We operate in a changing environment. New risks emerge from time to
time and it is not possible for us to predict all risks that may
affect us. The forward-looking statements, as well as our prospects
as a whole, are subject to risks and uncertainties that could cause
actual results to differ materially from those set forth in the
forward-looking statements including:
• changes in general economic and political conditions,
including unemployment rates, changes in the U.S. housing and
mortgage credit markets, declines in home prices and property
values, the performance of the U.S. or global economies, the amount
of liquidity in the capital or credit markets, changes or
volatility in interest rates or consumer confidence and changes in
credit spreads, all of which may be impacted by, among other
things, legislative activity or inactivity, actual or threatened
downgrades of U.S. government credit ratings, or actual or
threatened defaults on U.S. government obligations;
• changes in the way customers, investors, regulators or
legislators perceive the strength of private mortgage insurers;
• catastrophic events, increased unemployment, home price
depreciation or other negative economic changes generally or in
geographic regions where our mortgage insurance exposure is more
concentrated;
• Radian Guaranty Inc.’s ability to remain eligible under
applicable requirements imposed by the Federal Housing Finance
Agency (“FHFA”) and by Fannie Mae and Freddie Mac (collectively,
the “GSEs”) to insure loans purchased by the GSEs;
• our ability to maintain sufficient holding company liquidity
to meet our short- and long-term liquidity needs. We expect to
contribute a significant amount of our holding company liquidity to
support Radian Guaranty Inc.’s compliance with the final financial
requirements (“PMIERs Financial Requirements”) of the Private
Mortgage Insurer Eligibility Requirements that were issued by the
FHFA in final form on April 17, 2015 (“PMIERs”) and which become
effective for existing mortgage insurers on December 31, 2015. Our
projections regarding the amount of holding company liquidity that
we may contribute to Radian Guaranty Inc. to comply with the PMIERs
Financial Requirements are based on our estimates of Radian
Guaranty’s “Minimum Required Assets”(a risk-based minimum required
asset amount, as defined in the PMIERs, calculated based on net
risk in force, which approximates the maximum loss exposure at any
point in time and a variety of measures designed to evaluate credit
quality) and “Available Assets” (as defined in the PMIERs, these
assets primarily include the liquid assets of a mortgage insurer
and its affiliated reinsurers, and exclude premiums received but
not yet earned), which may not prove to be accurate, and which
could be impacted by: (1) our ability to receive, as expected, GSE
approval for the amendments to our existing reinsurance
arrangements and receive the full PMIERs benefit for these
arrangements; (2) whether we elect to convert certain liquid assets
into PMIERs-compliant Available Assets; (3) factors affecting the
performance of our mortgage insurance business, including our level
of defaults, prepayments, the losses we incur on new or existing
defaults and the credit characteristics of our mortgage insurance;
and (4) how much capital we expect to maintain at our mortgage
insurance subsidiaries in excess of the amount required to satisfy
the PMIERs Financial Requirements. Contributions of holding company
cash and investments from Radian Group will leave less liquidity to
satisfy Radian Group’s future obligations. Depending on the amount
of holding company contributions that we make, we may be required
or may decide to seek additional capital by incurring additional
debt, by issuing additional equity, or by selling assets, which we
may not be able to do on favorable terms, if at all;
• our ability to maintain an adequate level of capital in our
insurance subsidiaries to satisfy existing and future state
regulatory requirements, including new capital adequacy standards
that currently are being developed by the National Association of
Insurance Commissioners (“NAIC”) and that could be adopted by
states in which we write business;
• changes in the charters or business practices of, or rules or
regulations imposed by or applicable to the GSEs, including: (1)
the implementation of the final PMIERs (including as updated on
June 30, 2015 to increase the amount of Available Assets that must
be held against risk in force associated with lender paid mortgage
insurance originated on or after January 1, 2016), which (a) will
increase the amount of capital that Radian Guaranty is required to
hold, and therefore, reduce our current returns on subsidiary
capital, (b) potentially impact the type of business that Radian
Guaranty is willing to write, which could reduce our new insurance
written (“NIW”) and market share, (c) impose extensive and more
stringent operational requirements in areas such as claim
processing, loss mitigation, document retention, underwriting,
quality control, reporting and monitoring, among others, that may
result in additional costs to achieve and maintain compliance, and
(d) require the consent of the GSEs for Radian Guaranty to take
certain actions such as paying dividends, entering into various
inter-company agreements, and commuting or reinsuring risk, among
others; (2) changes that could limit the type of business that
Radian Guaranty and other private mortgage insurers are willing to
write, which could reduce our new insurance written NIW and market
share; (3) changes that could increase the cost of private mortgage
insurance, including as compared to the Federal Housing
Administration’s (“FHA”) pricing, or result in the emergence of
other forms of credit enhancement; and (4) changes that could
require us to alter our business practices and which may result in
substantial additional costs;
• our ability to continue to effectively mitigate our mortgage
insurance losses, including a decrease in net “Rescissions” (our
legal right, under certain conditions, to unilaterally rescind
coverage on our mortgage insurance policies if we determine that a
loan did not qualify for insurance), “Claim Denials” (our legal
right, under certain conditions, to deny a claim) or “Claim
Curtailments” (our legal right, under certain conditions, to reduce
the amount of a claim, including due to servicer negligence)
resulting from an increase in the number of successful challenges
to previous Rescissions, Claim Denials or Claim Curtailments
(including as part of one or more settlements of disputed
Rescissions or Claim Denials), or as a result of the GSEs
intervening in or otherwise limiting our loss mitigation practices,
including settlements of disputes regarding “Loss Mitigation
Activities” (activities such as Rescissions, Claim Denials, Claim
Curtailments and cancellations);
• the negative impact that our Loss Mitigation Activities may
have on our relationships with our customers and potential
customers, including the potential loss of current or future
business and the heightened risk of disputes and litigation;
• any disruption in the servicing of mortgages covered by our
insurance policies, as well as poor servicer performance;
• a substantial decrease in the persistency rates of our
mortgage insurance policies, which has the effect of reducing our
premium income on our premiums on mortgage insurance products paid
on a monthly installment basis and could decrease the profitability
of our mortgage insurance business;
• heightened competition for our mortgage insurance business
from others such as the FHA, the U.S. Department of Veterans
Affairs and other private mortgage insurers (including with respect
to other private mortgage insurers, those that have been assigned
higher ratings than we have, that may have access to greater
amounts of capital than we do, or that are new entrants to the
industry, and therefore, are not burdened by legacy obligations)
and the impact such heightened competition may have on our returns
and our NIW;
• the increased demand from lenders for customized (reduced)
rates on lender-paid, single premium mortgage insurance products,
which could further reduce our overall average premium rates and
returns and, to the extent we decide to limit this type of
business, could adversely impact our market share and our customer
relationships;
• changes to the current system of housing finance, including
the possibility of a new system in which private mortgage insurers
are not required or their products are significantly limited in
effect or scope;
• the effect of the Dodd-Frank Wall Street Reform and Consumer
Protection Act on the financial services industry in general, and
on our businesses in particular;
• the adoption of new or application of existing federal or
state laws and regulations, or changes in these laws and
regulations or the way they are interpreted, including, without
limitation: (1) the resolution of existing, or the possibility of
additional, lawsuits, inquiries or investigations (including a
recent inquiry from the Wisconsin Office of the Commissioner of
Insurance to all private mortgage insurers pertaining to customized
insurance rates and terms offered to mortgage insurance customers);
(2) changes to the Mortgage Guaranty Insurers Model Act (“Model
Act”) being considered by the NAIC that could include more
stringent capital and other requirements for Radian Guaranty in
states that adopt the new Model Act in the future; and (3)
legislative and regulatory changes (a) impacting the demand for our
products, (b) limiting or restricting the products we may offer or
increasing the amount of capital we are required to hold, (c)
affecting the form in which we execute credit protection, or (d)
otherwise impacting our existing businesses or future
prospects;
• the amount and timing of potential payments or adjustments
associated with federal or other tax examinations, including
deficiencies assessed by the Internal Revenue Service (“IRS”)
resulting from the examination of our 2000 through 2007 tax years,
which we are currently contesting;
• the possibility that we may fail to estimate accurately the
likelihood, magnitude and timing of losses in connection with
establishing loss reserves for our mortgage insurance business;
• volatility in our results of operations caused by changes in
the fair value of our assets and liabilities, including a
significant portion of our investment portfolio;
• changes in “GAAP” (accounting principles generally accepted in
the U.S.) or “SAP” (statutory accounting practices including those
required or permitted, if applicable, by the insurance departments
of the respective states of domicile of our insurance subsidiaries)
rules and guidance, or their interpretation;
• legal and other limitations on amounts we may receive from our
subsidiaries as dividends or through our tax- and expense-sharing
arrangements with our subsidiaries; and
• the possibility that we may need to impair the estimated fair
value of goodwill established in connection with our acquisition of
Clayton Holdings LLC, the valuation of which requires the use of
significant estimates and assumptions with respect to the estimated
future economic benefits arising from certain assets acquired in
the transaction such as the value of expected future cash flows of
Clayton, Clayton’s workforce, expected synergies with our other
affiliates and other unidentifiable intangible assets.
For more information regarding these risks and uncertainties as
well as certain additional risks that we face, you should refer to
the Risk Factors detailed in Item 1A of Part I of our Annual Report
on Form 10-K for the year ended December 31, 2014 and in our
subsequent reports and registration statements filed from time to
time with the U.S. Securities and Exchange Commission. We caution
you not to place undue reliance on these forward-looking
statements, which are current only as of the date on which we
issued this press release. We do not intend to, and we disclaim any
duty or obligation to, update or revise any forward-looking
statements to reflect new information or future events or for any
other reason.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20150722005326/en/
Radian Group Inc.Emily Riley,
215-231-1035emily.riley@radian.biz
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