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Share Name | Share Symbol | Market | Type |
---|---|---|---|
Radian Group Inc | NYSE:RDN | NYSE | Common Stock |
Price Change | % Change | Share Price | High Price | Low Price | Open Price | Shares Traded | Last Trade | |
---|---|---|---|---|---|---|---|---|
-0.32 | -1.02% | 31.18 | 31.58 | 30.98 | 31.43 | 639,435 | 22:30:00 |
-- Reports net income of $92 million or $0.39 per diluted share --
-- Adjusted diluted net operating income of $0.35 per share --
Radian Group Inc. (NYSE: RDN) today reported net income from continuing operations for the quarter ended March 31, 2015, of $91.7 million, or $0.39 per diluted share, which included net gains on investments and other financial instruments of $16.8 million. This compares to net income from continuing operations for the quarter ended March 31, 2014, of $146.0 million, or $0.68 per diluted share, which included net gains on investments and other financial instruments of $43.0 million. Book value per share at March 31, 2015, was $11.53.
Adjusted pretax operating income for the quarter ended March 31, 2015, was $123.9 million, compared to adjusted pretax operating income for the quarter ended March 31, 2014, of $84.0 million. Adjusted diluted net operating income per share for the quarter ended March 31, 2015, was $0.35. See “Non-GAAP Financial Measures” below.
Key Financial Highlights (dollars in millions, except per share data)
Quarter EndedMarch 31,2015
Quarter EndedMarch 31,2014**
PercentChange
Net income from continuing operations $91.7 $146.0 (37%) Diluted net income per share from continuing operations $0.39 $0.68 (43%) Adjusted pretax operating income $123.9 $84.0 48% Adjusted diluted net operating income per share * $0.35 * * Revenues $290.7 $258.2 13% Book value per share $11.53 $6.10 89% *Adjusted diluted net operating income per share is not comparable for periods prior to the quarter ended March 31, 2015, due to the impact on the company’s effective tax rate from the valuation allowance against deferred tax assets.
**Radian acquired Clayton on June 30, 2014, and therefore results for the quarter ended March 31, 2014, do not include results from Clayton.
“We delivered strong results for Radian in the first quarter, driven primarily by outstanding credit trends in our mortgage insurance business,” said Radian’s Chief Executive Officer S.A. Ibrahim. “The last twelve months have been a turning point for Radian, as we’ve eliminated a significant portion of our legacy risk and therefore simplified our company with a focus on our core strengths. Today, we are better positioned to drive long-term value, both from our large and growing mortgage insurance portfolio and by broadening our future sources of revenue through our new mortgage and real estate services businesses.”
FIRST QUARTER HIGHLIGHTS AND RECENT EVENTS
Mortgage Insurance
Mortgage and Real Estate Services
Expenses and Discontinued Operations
CAPITAL AND LIQUIDITY UPDATE
Radian Group maintains approximately $700 million of available liquidity.
CONFERENCE CALL
Radian will discuss first quarter financial results in a conference call today, Thursday, April 30, 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 800.288.8961 inside the U.S., or 612.332.0335 for international callers, using passcode 358122 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 358122.
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 effective tax rate for the period. See press release Exhibit F or Radian’s website for a description of these items, as well as a reconciliation of adjusted pretax operating income (loss) to consolidated pretax income (loss) from continuing operations.
ABOUT RADIAN
Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia, provides private mortgage insurance and related risk mitigation products and services to mortgage lenders nationwide through its principal operating subsidiary, Radian Guaranty Inc. These services help promote and preserve homeownership opportunities for homebuyers, while protecting lenders from default-related losses on residential first mortgages and facilitating the sale of low-downpayment mortgages in the secondary market. 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 Three Months Ended March 31, 2015 and Three Months Ended March 31, 2014
Exhibit F: Definition of Consolidated Non-GAAP Financial MeasureExhibit G:
Consolidated Non-GAAP Financial Measure ReconciliationsExhibit H:
Mortgage Insurance Supplemental Information New Insurance Written
Exhibit I:
Mortgage Insurance Supplemental Information Insurance in Force and Risk in Force by Product
Exhibit J:
Mortgage Insurance Supplemental Information Risk in Force by FICO, LTV and Policy Year
Exhibit K:
Mortgage Insurance Supplemental Information Pool and Other Risk in Force, Risk-to-Capital
Exhibit L:
Mortgage Insurance Supplemental Information Claims, Reserves and Reserve per Default
Exhibit M:
Mortgage Insurance Supplemental Information Default Statistics
Exhibit N:
Mortgage Insurance Supplemental Information Captives, QSR and Persistency
Exhibit O:
Mortgage and Real Estate Services Supplemental InformationRadian Group Inc. and Subsidiaries Condensed Consolidated Statements of Operations Trend Schedule Exhibit A 2015 2014
(In thousands, except per share amounts)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Revenues: Net premiums earned - insurance $ 224,595 $ 224,293 $ 217,827 $ 203,646 $ 198,762 Services revenue 30,529 34,450 42,243 — — Net investment income 17,328 16,531 17,143 16,663 15,318 Net gains on investments and other financial instruments 16,779 17,983 (6,294 ) 25,332 42,968 Other income 1,432 1,793 1,162 1,739 1,126 Total revenues 290,663 295,050 272,081 247,380 258,174 Expenses: Provision for losses 45,028 82,867 48,942 64,648 49,626 Policy acquisition costs 7,750 6,443 4,240 6,746 7,017 Direct cost of services 18,451 19,709 23,896 — — Other operating expenses 54,576 85,800 51,225 60,751 54,507 Interest expense 24,385 24,200 23,989 22,348 19,927 Amortization and impairment of intangible assets 3,023 5,354 3,294 — — Total expenses 153,213 224,373 155,586 154,493 131,077 Pretax income from continuing operations 137,450 70,677 116,495 92,887 127,097 Income tax provision (benefit) 45,723 (807,349 ) (15,536 ) (10,650 ) (18,883 ) Net income from continuing operations 91,727 878,026 132,031 103,537 145,980 Income (loss) from discontinued operations, net of tax 530 (449,691 ) 21,559 71,296 56,779 Net income $ 92,257 $ 428,335 $ 153,590 $ 174,833 $ 202,759 Diluted net income per share: Net income from continuing operations $ 0.39 $ 3.63 $ 0.58 $ 0.47 $ 0.68 Income (loss) from discontinued operations, net of tax — (1.85 ) 0.09 0.31 0.26 Net income $ 0.39 $ 1.78 $ 0.67 $ 0.78 $ 0.94On 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, until the April 1, 2015 sale date, the operating results of Radian Asset Assurance continue to be classified as discontinued operations for all periods presented in our condensed consolidated statements of operations. Prior periods have been revised to conform to the current period presentation for these changes.
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 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Net income from continuing operations: Net income from continuing operations—basic $ 91,727 $ 878,026 $ 132,031 $ 103,537 $ 145,980 Adjustment for dilutive Convertible Senior Notes due 2019, net of tax (1) 3,673 3,641 5,552 5,503 5,455 Net income from continuing operations—diluted $ 95,400 $ 881,667 $ 137,583 $ 109,040 $ 151,435 Net income: Net income from continuing operations—basic $ 91,727 $ 878,026 $ 132,031 $ 103,537 $ 145,980 Income (loss) from discontinued operations, net of tax 530 (449,691 ) 21,559 71,296 56,779 Net income—basic 92,257 428,335 153,590 174,833 202,759Adjustment for dilutive Convertible Senior Notes due 2019, net of tax (1)
3,673 3,641 5,552 5,503 5,455 Net income—diluted $ 95,930 $ 431,976 $ 159,142 $ 180,336 $ 208,214 Average common shares outstanding—basic 191,224 191,053 191,050 182,583 173,165 Dilutive effect of Convertible Senior Notes due 2017 10,886 10,590 6,342 7,599 9,003 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) 3,202 3,422 2,939 2,861 2,764 Adjusted average common shares outstanding—diluted 243,048 242,801 238,067 230,779 222,668Net income per share:
Basic: Net income from continuing operations $ 0.48 $ 4.59 $ 0.69 $ 0.57 $ 0.84 Income (loss) from discontinued operations, net of tax — (2.35 ) 0.11 0.39 0.33 Net income $ 0.48 $ 2.24 $ 0.80 $ 0.96 $ 1.17 Diluted: Net income from continuing operations $ 0.39 $ 3.63 $ 0.58 $ 0.47 $ 0.68 Income (loss) from discontinued operations, net of tax — (1.85 ) 0.09 0.31 0.26 Net income $ 0.39 $ 1.78 $ 0.67 $ 0.78 $ 0.94(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)
For the three months ended March 31, 2015, December 31, 2014, September 31, 2014, June 30, 2014 and March 31, 2014, 540,400 541,720, 557,240, 1,483,800 and 946,400 shares, respectively, 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.
Radian Group Inc. and Subsidiaries Condensed Consolidated Balance Sheets Exhibit C March 31, December 31,
(In thousands, except per share data)
2015 2014 Assets: Investments $ 3,621,646 $ 3,629,299 Cash 57,204 30,465 Restricted cash 14,220 14,031 Accounts and notes receivable 64,405 85,792 Deferred income taxes, net 649,996 700,201 Goodwill and other intangible assets, net 293,798 288,240 Other assets 356,713 375,491 Assets held for sale 1,755,873 1,736,444 Total assets $ 6,813,855 $ 6,859,963 Liabilities and stockholders’ equity: Unearned premiums $ 657,555 $ 644,504 Reserve for losses and loss adjustment expenses 1,384,714 1,560,032 Long-term debt 1,218,972 1,209,926 Other liabilities 310,642 326,743 Liabilities held for sale 966,078 947,008 Total liabilities 4,537,961 4,688,213 Equity component of currently redeemable convertible senior notes 68,982 74,690 Common stock 209 209 Additional paid-in capital 1,648,436 1,638,552 Retained earnings 498,593 406,814 Accumulated other comprehensive income 59,674 51,485 Total common stockholders’ equity 2,206,912 2,097,060 Total liabilities and stockholders’ equity $ 6,813,855 $ 6,859,963 Shares outstanding, end of period 191,416 191,054 Book value per share $ 11.53 $ 10.98
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:
Three Months Ended March 31,(In thousands)
2015 2014 Net premiums earned $ 1,007 $ 6,903 Net investment income 9,153 8,911 Net gains on investments and other financial instruments 13,668 22,182 Change in fair value of derivative instruments 2,625 50,086 Total revenues 26,453 88,082 Provision for losses 502 5,649 Policy acquisition costs (191 ) 1,597 Other operating expense 4,107 5,402 Total expenses 4,418 12,648 Equity in net loss of affiliates (13 ) (13 ) Income from operations of businesses held for sale 22,022 75,421 Loss on classification as held for sale (13,930 ) — Income tax provision 7,562 18,642 Income from discontinued operations, net of tax $ 530 $ 56,779The assets and liabilities associated with the discontinued operations have been segregated in the condensed consolidated balance sheets. The following table summarizes the major components of Radian Asset Assurance’s assets and liabilities held for sale on the condensed consolidated balance sheets as of March 31, 2015 and December 31, 2014:
March 31, December 31,(In thousands)
2015 2014 Fixed-maturity investments $ 226,334 $ 224,552 Equity securities 4,019 3,749 Trading securities 679,972 689,887 Short-term investments 449,391 435,413 Other invested assets 108,080 108,206 Other assets 288,077 274,637 Total assets held for sale $ 1,755,873 $ 1,736,444 Unearned premiums $ 152,445 $ 158,921 Reserve for losses and loss adjustment expenses 32,420 31,558 VIE debt 82,238 85,016 Derivative liabilities 187,462 183,370 Other liabilities 511,513 488,143 Total liabilities held for sale $ 966,078 $ 947,008
Radian Group Inc. and Subsidiaries
Segment Information
Exhibit E (page 1 of 2)
Summarized financial information concerning our operating segments and reconciliations to consolidated pretax income from continuing operations, as of and for the periods indicated, is as follows:
Three Months Ended March 31, 2015 Mortgage and Mortgage Real Estate(In thousands)
Insurance Services Total Net premiums written - insurance $241,908 $ —$
241,908
Increase in unearned premiums (17,313 ) — (17,313 ) Net premiums earned - insurance 224,595 — 224,595 Services revenue — 30,742 30,742 Net investment income (1) 17,328 — 17,328 Other income (1) 1,331 790 2,121 Total (2) 243,254 31,532 274,786 Provision for losses 45,851 — 45,851 Policy acquisition costs 7,750 — 7,750 Direct cost of services — 18,451 18,451 Other operating expenses before corporate allocations 34,050 9,659 43,709 Total (3) 87,651 28,110 115,761 Adjusted pretax operating income before corporate allocations 155,603 3,422 159,025 Allocation of corporate operating expenses (1) 9,758 981 10,739 Allocation of interest expense (1) 19,953 4,432 24,385 Adjusted pretax operating income (loss) $125,892 $ (1,991 ) $ 123,901 At March 31, 2015 Mortgage and Mortgage Real Estate(In thousands)
Insurance Services Total Cash & Investments $ 3,669,413 $ 9,437$
3,678,850 Restricted cash 11,348 2,872 14,220 Goodwill — 194,246 194,246 Other intangible assets, net — 99,552 99,552 Assets held for sale (4) — — 1,755,873 Total assets 4,708,744 349,238 6,813,855 Unearned premiums 657,555 — 657,555 Reserve for losses and loss adjustment expenses 1,384,714 — 1,384,714(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 inter-segment revenues of $0.9 million in the Mortgage and Real Estate Services segment.
(3)
Includes inter-segment expenses of $0.9 million in the Mortgage Insurance segment.
(4)
Assets held for sale are not part of the Mortgage Insurance or Mortgage and Real Estate Services segments.
Radian Group Inc. and Subsidiaries Segment Information Exhibit E (page 2 of 2) Three Months Ended March 31, 2014 Mortgage and Mortgage Real Estate
(In thousands)
Insurance Services (1) Total Net premiums written - insurance $ 212,953 $ — $ 212,953 Increase in unearned premiums (14,191 ) — (14,191 ) Net premiums earned - insurance 198,762 — 198,762 Net investment income (2) 15,318 — 15,318 Other income (2) 996 130 1,126 Total 215,076 130 215,206 Provision for losses 49,626 — 49,626 Change in expected economic loss or recovery for consolidated VIEs 139 — 139 Policy acquisition costs 7,017 — 7,017 Other operating expenses before corporate allocations 37,764 859 38,623 Total 94,546 859 95,405 Adjusted pretax operating income (loss) before corporate allocations 120,530 (729 ) 119,801 Allocation of corporate operating expenses (2) 15,884 — 15,884 Allocation of interest expense (2) 19,927 — 19,927 Adjusted pretax operating income (loss) $ 84,719 $ (729 ) $ 83,990 At March 31, 2014 Mortgage and Mortgage Real Estate(In thousands)
Insurance Services Total Cash and investments $ 3,302,763 $ 24 $ 3,302,787 Restricted cash 22,366 — 22,366 Goodwill — 2,095 2,095 Intangible assets, net — 188 188 Assets held for sale (3) — — 1,795,185 Total assets 3,731,139 2,661 5,528,985 Unearned premiums 580,453 — 580,453 Reserve for losses and loss adjustment expenses 1,893,960 — 1,893,960(1)
Amounts do not include Clayton Holdings, acquired June 30, 2014. However, effective with the fourth quarter of 2014, the Mortgage and Real Estate 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 Mortgage and Real Estate Services segment for all periods presented.
(2)
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.
(3)
Assets held for sale are not part of the Mortgage Insurance or Mortgage and Real Estate 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, 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 period's effective 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. We do not view them to be indicative of our fundamental operating activities. 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. 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)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)
(3)
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).
(4)
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
Reconciliation of Adjusted Pretax Operating Income (Loss) to Consolidated Pretax Income from Continuing Operations
Three Months Ended March 31,(In thousands)
2015 2014 Adjusted pretax operating income (loss): Mortgage Insurance (1) $ 125,892 $ 84,719 Mortgage and Real Estate Services (2) (1,991 ) (729 ) Total adjusted pretax operating income 123,901 83,990 Net gains on investments and other financial instruments (3) 16,779 43,107 Acquisition-related expenses (4) (207 ) — Amortization and impairment of intangible assets (4) (3,023 ) — Consolidated pretax income from continuing operations $ 137,450 $ 127,097(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 Mortgage and Real Estate 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 Mortgage and Real Estate Services segment for all periods presented.
(3)
The change in expected economic loss or recovery associated with our consolidated VIEs is included in adjusted pretax operating income above. Therefore, for purposes of this reconciliation, net gains on investments and other financial instruments has been adjusted by $0.1 million for the three months ended March 31, 2014, to reverse this item, which represents a non-GAAP amount that is not included in net income.
(4)
Please see Exhibit F for the definition of this line item.
Reconciliation of Adjusted Diluted Net Operating Income Per Share to Net Income Per Share from Continuing Operations
Three Months Ended March 31, 2015 Adjusted diluted net operating income per share $ 0.35 After tax per share impact: Net gains on investments and other financial instruments 0.05 Acquisition-related expenses — Amortization and impairment of intangible assets (0.01 ) Net income per share from continuing operations $ 0.39On 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 Exhibit H Three Months Ended March 31, 2015 2014($ in millions)
$ % $ %Primary new insurance written
Prime $ 9,384 100.0 % $ 6,807 100.0 %Alt-A and A minus and below
1 — 1 — Total Primary $ 9,385 100.0 % $ 6,808 100.0 %Total primary new insurance written by FICO score
>=740 5,968 63.6 % 4,345 63.8 %680-739
2,845 30.3 2,041 30.0620-679
572 6.1 422 6.2 Total Primary $ 9,385 100.0 % $ 6,808 100.0 %Percentage of primary new insurance written
Monthly premiums 63 % 73 % Single premiums 37 % 27 % Refinances 33 % 18 % LTV 95.01% and above 1.8 % 0.9 % 90.01% to 95.00% 48.4 % 51.8 % 85.01% to 90.00% 33.3 % 34.4 % 85.00% and below 16.5 % 12.9 %Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information Exhibit I March 31, March 31, 2015 2014
($ in millions)
$ % $ %Primary insurance in force (1)
Flow $ 162,832 94.6 % $ 152,731 94.1 % Structured 9,309 5.4 9,637 5.9 Total Primary $ 172,141 100.0 % $ 162,368 100.0 % Prime $ 160,452 93.2 % $ 148,736 91.6 % Alt-A 7,122 4.1 8,317 5.1 A minus and below 4,567 2.7 5,315 3.3 Total Primary $ 172,141 100.0 % $ 162,368 100.0 %Primary risk in force (1)
Flow $ 41,256 95.1 % $ 38,252 94.6 % Structured 2,133 4.9 2,180 5.4 Total Primary $ 43,389 100.0 % $ 40,432 100.0 % Flow Prime $ 39,251 95.1 % $ 35,867 93.8 % Alt-A 1,243 3.0 1,474 3.8 A minus and below 762 1.9 911 2.4 Total Flow $ 41,256 100.0 % $ 38,252 100.0 % Structured Prime $ 1,341 62.9 % $ 1,292 59.3 % Alt-A 410 19.2 465 21.3 A minus and below 382 17.9 423 19.4 Total Structured $ 2,133 100.0 % $ 2,180 100.0 % Total Prime $ 40,592 93.6 % $ 37,159 91.9 % Alt-A 1,653 3.8 1,939 4.8 A minus and below 1,144 2.6 1,334 3.3 Total Primary $ 43,389 100.0 % $ 40,432 100.0 %(1)
Includes amounts ceded under our reinsurance agreements, as well as amounts related to the Freddie Mac Agreement.
Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information Exhibit J March 31, March 31, 2015 2014
($ in millions)
$ % $ %Total primary risk in force by FICO score
Flow >=740 $ 23,964 58.1 % $ 21,976 57.4 % 680-739 12,356 30.0 11,158 29.2 620-679 4,392 10.6 4,459 11.7 <=619 544 1.3 659 1.7 Total Flow $ 41,256 100.0 % $ 38,252 100.0 % Structured >=740 $ 664 31.1 % $ 590 27.1 % 680-739 599 28.1 624 28.6 620-679 513 24.1 572 26.2 <=619 357 16.7 394 18.1 Total Structured $ 2,133 100.0 % $ 2,180 100.0 % Total >=740 $ 24,628 56.8 % $ 22,566 55.8 % 680-739 12,955 29.8 11,782 29.1 620-679 4,905 11.3 5,031 12.5 <=619 901 2.1 1,053 2.6 Total Primary $ 43,389 100.0 % $ 40,432 100.0 %Total primary risk in force by LTV
95.01% and above $ 3,440 7.9 % $ 4,008 9.9 % 90.01% to 95.00% 20,897 48.2 17,767 44.0 85.01% to 90.00% 15,187 35.0 14,807 36.6 85.00% and below 3,865 8.9 3,850 9.5 Total $ 43,389 100.0 % $ 40,432 100.0 %Total primary risk in force by policy year
2005 and prior $ 3,364 7.8 % $ 4,209 10.4 %2006
1,922 4.4 2,243 5.62007
4,442 10.2 5,064 12.52008
3,267 7.5 3,810 9.42009
994 2.3 1,363 3.42010
859 2.0 1,144 2.82011
1,677 3.9 2,165 5.42012
6,170 14.2 7,511 18.62013
9,704 22.4 11,210 27.72014
8,684 20.0 1,713 4.22015
2,306 5.3 — — Total $ 43,389 100 % $ 40,432 100.0 % Primary risk in force on defaulted loans (1) $ 1,883 $ 2,466(1)
(1)
Excludes risk related to loans subject to the Freddie Mac Agreement.
Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information Exhibit K March 31, March 31,
($ in millions)
2015 2014 $ % $ %Pool risk in force
Prime $ 867 74.7 % $ 1,263 78.9 % Alt-A 54 4.7 68 4.3 A minus and below 239 20.6 269 16.8 Total $ 1,160 100.0 % $ 1,600 100.0 %Total pool risk in force by policy year
2005 and prior
$ 1,090 94.0 % $ 1,516 94.7 %2006
7 0.6 19 1.22007
62 5.3 64 4.02008
1 0.1 1 0.1 Total pool risk in force $ 1,160 100.0 % $ 1,600 100.0 %Other risk in force
Second-lien 1st loss $ 42 $ 54 2nd loss 12 16 NIMS — 5 1st loss-Hong Kong primary mortgage insurance 9 18 Total other risk in force $ 63 $ 93 Risk to capital ratio-Radian Guaranty only 17.1 :1(1)
19.2 :1 Risk to capital ratio-Mortgage Insurance combined 19.1 :1
(1)
23.0 :1 Three Months Ended March 31, 2015
2014
Loss ratio (2) 20.4 %
25.0
% Expense ratio - NPE basis (2) 23.0 %
30.5
% Expense ratio - NPW basis (3) 21.3 %
28.5
%(1)
Preliminary.
(2)
Calculated on a GAAP basis using net premiums earned (“NPE”). For the three months ended March 31, 2015 and 2014, the expense ratio includes 0.9% and 2.1%, respectively, of expenses that were previously allocated to the Financial Guaranty segment, because these corporate items were not reclassified to discontinued operations. These expenses have been reallocated to the Mortgage Insurance segment.
(3)
Calculated on a GAAP basis using net premiums written (“NPW”). For the three months ended March 31, 2015 and 2014, includes 0.9% and 1.9%, respectively, of expenses that were previously allocated to the Financial Guaranty segment, because these corporate items were not reclassified to discontinued operations. These expenses have been reallocated to the Mortgage Insurance segment.
Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information Exhibit L
Three Months EndedMarch 31,
($ in thousands) 2015 2014 Net claims paid Prime $ 76,434 $ 195,446 Alt-A 20,194 46,593 A minus and below 15,209 33,593 Total primary claims paid 111,837 275,632 Pool 8,901 30,863 Second-lien and other (111 ) 727 Subtotal 120,627 307,222 Impact of captive terminations (12,000 ) (1,156 ) Impact of settlements 98,468 875 Total $ 207,095 $ 306,941 Average claim paid (1) Prime $ 44.0 $ 44.3 Alt-A 54.6 55.4 A minus and below 35.9 37.1 Total primary average claims paid 44.2 44.7 Pool 51.5 60.3 Second-lien and other (12.3 ) 20.8 Total $ 44.5 $ 45.8 Average primary claim paid (2) $ 45.3 $ 46.5 Average total claim paid (2) $ 45.5 $ 47.4 Reserve for losses by category Prime $ 640,919 $ 790,529 Alt-A 278,350 351,695 A minus and below 163,390 189,453 IBNR and other 167,204 347,674 LAE 53,210 50,684 Reinsurance recoverable (3) 13,365 25,751 Total primary reserves 1,316,438 1,755,786 Pool insurance 62,943 123,596 IBNR and other 1,227 5,679 LAE 3,051 4,517 Total pool reserves 67,221 133,792 Total 1st lien reserves 1,383,659 1,889,578 Second lien and other 1,055 4,382 Total reserves $ 1,384,714 $ 1,893,960 1st lien reserve per default (4) Primary reserve per primary default excluding IBNR and other $ 28,423 $ 26,509 Pool reserve per pool default excluding IBNR and other $ 9,774 $ 13,054(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.
(4)
If calculated before giving effect to deductibles and stop losses in pool transactions, this would be $17,942 and $22,172 at March 31, 2015 and 2014, respectively.
Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information Exhibit M March 31, December 31, March 31, 2015 2014 2014
Default Statistics
Primary Insurance:Prime
Number of insured loans 801,332 797,436 755,396 Number of loans in default 25,114 28,246 32,708 Percentage of loans in default 3.13 % 3.54 % 4.33 %Alt-A
Number of insured loans 37,468 38,953 43,508 Number of loans in default 7,480 8,136 10,173 Percentage of loans in default 19.96 % 20.89 % 23.38 %A minus and below
Number of insured loans 35,425 36,688 40,898 Number of loans in default 7,846 8,937 10,238 Percentage of loans in default 22.15 % 24.36 % 25.03 % Total Primary Number of insured loans 874,225 873,077 839,802 Number of loans in default (1) 40,440 45,319 53,119 Percentage of loans in default 4.63 % 5.19 % 6.33 % Pool insurance Number of loans in default 6,748 8,297 9,814(1)
Excludes 3,715, 4,467 and 6,022 loans subject to the Freddie Mac Agreement that are in default at March 31, 2015, December 31, 2014 and March 31, 2014, respectively, as we no longer have claims exposure on these loans.
Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information Exhibit N Three Months EndedMarch 31, ($ in thousands) 2015 2014
1st Lien Captives
Premiums ceded to captives $ 2,585 $ 3,508 % of total premiums 1.1 % 1.6 % Insurance in force included in captives (1) 2.5 % 3.5 % Risk in force included in captives (1) 2.4 % 3.3 %Initial Quota Share Reinsurance (“QSR”) Transaction
QSR ceded premiums written $ 4,067 $ 5,304 % of premiums written 1.6 % 2.3 % QSR ceded premiums earned $ 6,018 $ 6,807 % of premiums earned 2.5 % 3.2 % Ceding commissions $ 880 $ 1,326 Risk in force included in QSR (2) $ 1,041,383 $ 1,289,856Second QSR Transaction
QSR ceded premiums written $ 6,529 $ 7,293 % of premiums written 2.6 % 3.2 % QSR ceded premiums earned $ 8,768 $ 6,585 % of premiums earned 3.6 % 3.1 % Ceding commissions $ 2,285 $ 2,553 Risk in force included in QSR (2) $ 1,533,677 $ 1,360,651 Persistency (twelve months ended March 31) (3) 82.6 % 83.3 %(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 RIF.
(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
Mortgage and Real Estate Services Supplemental Information
Exhibit O
The following table shows additional trend information for the Mortgage and Real Estate Services segment: Three Months EndedMarch 31, 2015Three Months EndedDecember 31, 2014
Three Months EndedSeptember 30, 2014
(In thousands)
Services revenue $ 30,742 $ 34,466$
42,243
Direct cost of services 18,451 19,709 23,896 Gross profit on services $ 12,291 $ 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 Mortgage and Real Estate 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:
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.
Radian Group Inc.Emily Riley, 215-231-1035emily.riley@radian.biz
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