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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 | |
---|---|---|---|---|---|---|---|---|
0.38 | 1.21% | 31.72 | 31.76 | 31.33 | 31.33 | 613,370 | 23:03:28 |
-- Net income of $66 million or $0.29 per diluted share --
-- Adjusted pretax operating income of $130 million --
-- Adjusted diluted net operating income of $0.37 per share --
-- Book value per share increases 8% year-over-year to $12.42 --
Radian Group Inc. (NYSE: RDN) today reported net income from continuing operations for the quarter ended March 31, 2016, of $66.2 million, or $0.29 per diluted share. This compares to net income from continuing operations for the quarter ended March 31, 2015, of $91.7 million, or $0.39 per diluted share. Pretax income from continuing operations for the quarter ended March 31, 2016, was $102.4 million, compared to $137.5 million for the quarter ended March 31, 2015.
Key Financial Highlights (dollars in millions, except per share data)
Quarter EndedMarch 31, 2016
Quarter EndedMarch 31, 2015
PercentChange
Net income from continuing operations $66.2 $91.7 (28 %) Diluted net income per share from continuing operations $0.29 $0.39 (26 %) Pretax income from continuing operations $102.4 $137.5 (26 %) Adjusted pretax operating income $130.2 $123.9 5 % Adjusted diluted net operating income per share * $0.37 $0.35 6 % Revenues $313.0 $290.7 8 % Net premiums earned - insurance $221.0 $224.6 (2 %) Book value per share $12.42 $11.53 8 %* Adjusted diluted net operating income per share is calculated using the company’s statutory tax rate.
Adjusted pretax operating income for the quarter ended March 31, 2016, was $130.2 million, compared to $123.9 million for the quarter ended March 31, 2015. Adjusted diluted net operating income per share for the quarter ended March 31, 2016, was $0.37, compared to $0.35 for the quarter ended March 31, 2015. See “Non-GAAP Financial Measures” below.
Book value per share at March 31, 2016 grew to $12.42, compared to $12.07 at December 31, 2015, and $11.53 at March 31, 2015.
“Our solid first quarter results were driven primarily by exceptional credit trends,” said Radian’s Chief Executive Officer S.A. Ibrahim. “We delivered on our commitment to strengthen our financial position, increase capital flexibility and improve our debt maturity profile, and during the quarter Radian Guaranty returned to investment grade ratings.”
FIRST QUARTER HIGHLIGHTS AND RECENT EVENTS
Mortgage Insurance
Mortgage and Real Estate Services
Consolidated Expenses
Other operating expenses were $59.0 million in the first quarter, compared to $59.6 million in the fourth quarter of 2015, and $53.8 million in the first quarter of last year.
CAPITAL AND LIQUIDITY UPDATE
Radian Group maintains approximately $393 million of available liquidity. Radian Guaranty expects to be in a position to seek to redeem a portion, or potentially all, of its $325 million surplus note with Radian Group as early as June 30, 2016. Any repayments of the surplus note by Radian Guaranty would increase Radian Group’s available liquidity by the same amount. Redemption of the surplus note is subject to approval by the Pennsylvania Insurance Department.
Ibrahim added, “With the combination of our high-quality mortgage insurance portfolio and the expanded capabilities of our mortgage and real estate services businesses, we believe we are better positioned today to drive long-term value than ever before.”
CONFERENCE CALL
Radian will discuss first quarter financial results in a conference call today, Wednesday, April 27, 2016, 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 800.288.8967 inside the U.S., or 612.332.0345 for international callers, using passcode 391331 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 391331.
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 pretax operating income adjusts GAAP pretax income from continuing operations to remove the effects of: (i) net gains (losses) on investments and other financial instruments; (ii) loss on induced conversion and debt extinguishment; (iii) acquisition-related expenses; (iv) amortization and impairment of intangible assets; and (v) net impairment losses recognized in earnings. 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.
In addition to the above non-GAAP measures for the consolidated company, the company also presents as supplemental information a non-GAAP measure for the Services segment, representing earnings before interest, income taxes, depreciation and amortization (EBITDA). Services EBITDA is calculated by using adjusted pretax operating income as described above, further adjusted to remove the impact of depreciation and corporate allocations for interest and operating expenses. Services EBITDA is presented to facilitate comparisons with other services companies, since it is a widely accepted measure of performance in the services industry.
See Exhibit F or Radian’s website for a description of these items, as well as Exhibit G for reconciliations to the most comparable 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:
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, Risk in Force by Product and 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, Reserves and Reserve per Default Exhibit L: Mortgage Insurance Supplemental Information Default Statistics Exhibit M: Mortgage Insurance Supplemental InformationQSR, Captives and Persistency
Radian Group Inc. and Subsidiaries Condensed Consolidated Statements of Operations Exhibit A 2016 2015
(In thousands, except per share amounts)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Revenues: Net premiums earned - insurance $ 220,950 $ 226,443 $ 227,433 $ 237,437 $ 224,595 Services revenue 31,600 37,493 42,189 43,503 30,630 Net investment income 27,201 22,833 22,091 19,285 17,328 Net gains (losses) on investments and other financial instruments 31,286 (13,402 ) 3,868 28,448 16,779 Other income 1,915 1,515 1,711 1,743 1,331 Total revenues 312,952 274,882 297,292 330,416 290,663 Expenses: Provision for losses 42,991 56,805 64,192 32,560 45,028 Policy acquisition costs 6,389 4,831 2,880 6,963 7,750 Direct cost of services 21,749 22,241 24,949 23,520 19,253 Other operating expenses 58,989 59,570 65,082 67,731 53,774 Interest expense 21,534 20,996 21,220 24,501 24,385 Loss on induced conversion and debt extinguishment 55,570 2,320 11 91,876 — Amortization and impairment of intangible assets 3,328 3,409 3,273 3,281 3,023 Total expenses 210,550 170,172 181,607 250,432 153,213 Pretax income from continuing operations 102,402 104,710 115,685 79,984 137,450 Income tax provision 36,153 30,182 45,594 34,791 45,723 Net income from continuing operations 66,249 74,528 70,091 45,193 91,727 Income from discontinued operations, net of tax — — — 4,855 530 Net income $ 66,249 $ 74,528 $ 70,091 $ 50,048 $ 92,257 Diluted net income per share: Net income from continuing operations $ 0.29 $ 0.32 $ 0.29 $ 0.20 $ 0.39 Income from discontinued operations, net of tax — — — 0.02 — Net income $ 0.29 $ 0.32 $ 0.29 $ 0.22 $ 0.39 Selected Mortgage Insurance Key Ratios Loss ratio (1) 19.6 % 25.1 % 28.2 % 13.3 % 20.4 % Expense ratio (1) 22.4 % 22.7 % 23.9 % 25.8 % 23.0 %(1) Calculated on a GAAP basis using net premiums earned.
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 Exhibit B The calculation of basic and diluted net income per share was as follows: 2016 2015(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 $ 66,249 $ 74,528 $ 70,091 $ 45,193 $ 91,727 Adjustment for dilutive Convertible Senior Notes due 2019, net of tax (1) 3,390 3,664 3,714 3,707 3,673 Net income from continuing operations—diluted $ 69,639 $ 78,192 $ 73,805 $ 48,900 $ 95,400 Net income: Net income from continuing operations—basic $ 66,249 $ 74,528 $ 70,091 $ 45,193 $ 91,727 Income from discontinued operations, net of tax — — — 4,855 530 Net income—basic 66,249 74,528 70,091 50,048 92,257 Adjustment for dilutive Convertible Senior Notes due 2019, net of tax (1) 3,390 3,664 3,714 3,707 3,673 Net income—diluted $ 69,639 $ 78,192 $ 73,805 $ 53,755 $ 95,930 Average common shares outstanding—basic 203,706 206,872 207,938 193,112 191,224 Dilutive effect of Convertible Senior Notes due 2017 — 1,057 1,798 12,438 10,886 Dilutive effect of Convertible Senior Notes due 2019 33,583 37,736 37,736 37,736 37,736 Dilutive effect of stock-based compensation arrangements (2) 2,418 2,316 3,323 3,364 3,202Adjusted average common shares outstanding—diluted 239,707 247,981 250,795 246,650 243,048
Net income per share:
Basic: Net income from continuing operations $ 0.33 $ 0.36 $ 0.34 $ 0.23 $ 0.48 Income from discontinued operations, net of tax — — — 0.03 — Net income $ 0.33 $ 0.36 $ 0.34 $ 0.26 $ 0.48 Diluted: Net income from continuing operations $ 0.29 $ 0.32 $ 0.29 $ 0.20 $ 0.39 Income from discontinued operations, net of tax — — — 0.02 — Net income $ 0.29 $ 0.32 $ 0.29 $ 0.22 $ 0.39(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:
2016 2015(In thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Shares of common stock equivalents 709 728 469 264 540Radian Group Inc. and Subsidiaries Condensed Consolidated Balance Sheets Exhibit C March 31 December 31, September 30, June 30, March 31,
(In thousands, except per share data)
2016 2015 2015 2015 2015 Assets: Investments $ 4,470,172 $ 4,298,686 $ 4,376,771 $ 4,309,148 $ 3,621,646 Cash 64,844 46,898 69,030 51,381 57,204 Restricted cash 10,060 13,000 10,280 12,633 14,220 Accounts and notes receivable 66,340 61,734 65,951 72,093 64,405 Deferred income taxes, net 518,059 577,945 601,893 651,238 649,996 Goodwill and other intangible assets, net 286,069 289,417 287,334 290,640 293,798 Prepaid reinsurance premium 228,718 40,491 44,091 47,835 53,088 Other assets 325,129 313,929 305,566 301,536 287,188 Assets held for sale — — — — 1,755,873 Total assets $ 5,969,391 $ 5,642,100 $ 5,760,916 $ 5,736,504 $ 6,797,418 Liabilities and stockholders’ equity: Unearned premiums $ 673,887 $ 680,300 $ 676,938 $ 665,947 $ 657,555 Reserve for losses and loss adjustment expense 891,348 976,399 1,098,570 1,204,792 1,384,714 Long-term debt 1,286,466 1,219,454 1,230,246 1,224,892 1,202,535 Reinsurance funds withheld 151,104 — — — — Other liabilities 306,188 269,016 311,855 278,929 310,642 Liabilities held for sale — — — — 966,078 Total liabilities 3,308,993 3,145,169 3,317,609 3,374,560 4,521,524 Equity component of currently redeemable convertible senior notes — — 7,737 8,546 68,982 Common stock 232 224 224 226 209 Additional paid-in capital 1,880,173 1,823,442 1,825,034 1,816,545 1,648,436 Retained earnings 757,202 691,742 617,731 548,161 498,593 Accumulated other comprehensive income (loss) 22,791 (18,477 ) (7,419 ) (11,534 ) 59,674 Total stockholders’ equity 2,660,398 2,496,931 2,435,570 2,353,398 2,206,912 Total liabilities and stockholders’ equity $ 5,969,391 $ 5,642,100 $ 5,760,916 $ 5,736,504 $ 6,797,418 Shares outstanding 214,265 206,872 206,870 208,587 191,416 Book value per share $ 12.42 $ 12.07 $ 11.77 $ 11.28 $ 11.53Radian 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 EBITDA, along with reconciliations to consolidated GAAP measures, see Exhibits F and G.
Mortgage Insurance 2016 2015(In thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Net premiums written - insurance $ 26,310 (1) $ 233,347 $ 242,168 $ 251,082 $ 241,908 Decrease (increase) in unearned premiums 194,640 (6,904 ) (14,735 ) (13,645 ) (17,313 ) Net premiums earned - insurance 220,950 226,443 227,433 237,437 224,595 Net investment income (2) 27,201 22,833 22,091 19,285 17,328 Other income (2) 1,915 1,515 1,711 1,743 1,331 Total 250,066 250,791 251,235 258,465 243,254 Provision for losses 43,275 56,817 64,128 31,637 45,851 Policy acquisition costs 6,389 4,831 2,880 6,963 7,750 Other operating expenses before corporate allocations 33,829 37,406 36,632 41,853 34,050Total (3)
83,493 99,054 103,640 80,453 87,651 Adjusted pretax operating income before corporate allocations 166,573 151,737 147,595 178,012 155,603Allocation of corporate operating expenses (2)
9,329 9,251 14,893 12,516 9,758 Allocation of interest expense (2) 17,112 16,582 16,797 20,070 19,953 Adjusted pretax operating income $ 140,132 $ 125,904 $ 115,905 $ 145,426 $ 125,892 Services 2016 2015(In thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1Services revenue (3)
$ 32,196 $ 38,175 $ 43,114 $ 44,595 $ 31,532 Direct cost of services 22,053 22,880 25,870 25,501 19,253 Other operating expenses before corporate allocations 13,883 11,710 11,533 11,522 8,857 Total 35,936 34,590 37,403 37,023 28,110 Adjusted pretax operating (loss) income before corporate allocations (4) (3,740 ) 3,585 5,711 7,572 3,422 Allocation of corporate operating expenses 1,751 968 1,567 1,307 981 Allocation of interest expense 4,422 4,414 4,423 4,431 4,432 Adjusted pretax operating (loss) income $ (9,913 ) $ (1,797 ) $ (279 ) $ 1,834 $ (1,991 )(1)
Net of ceded premiums written under the Single Premium QSR transaction of $197.6 million.
(2)
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.
(3)
Inter-segment information:
2016 2015 Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Inter-segment expense included in Mortgage Insurance segment $ 596 $ 682 $ 925 $ 1,092 $ 902 Inter-segment revenue included in Services segment 596 682 925 1,092 902Radian Group Inc. and Subsidiaries Segment Information Exhibit E (page 2 of 2) (4) Supplemental information for Services EBITDA (see definition in Exhibit F): 2016 2015 Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Adjusted pretax operating (loss) income before corporate allocations $ (3,740 ) $ 3,585 $ 5,711 $ 7,572 $ 3,422 Depreciation and amortization 661 612 555 482 449 Services EBITDA $ (3,079 ) $ 4,197 $ 6,266 $ 8,054 $ 3,871
Selected balance sheet information for our segments, as of the periods indicated, is as follows:
At March 31, 2016(In thousands)
MortgageInsurance
Services Total Total assets $ 5,605,505 363,886 $ 5,969,391 At December 31, 2015(In thousands)
MortgageInsurance
Services Total Total assets $ 5,281,597 360,503 $ 5,642,100
Radian Group Inc. and Subsidiaries
Definition of Consolidated Non-GAAP Financial Measures
Exhibit F (page 1 of 2)
Use of Non-GAAP Financial Measures
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 and 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, we do not view these activities 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 Measures
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).
In addition to the above non-GAAP measures for the consolidated company, we also have presented as supplemental information a non-GAAP measure for our Services segment, representing earnings before interest, income taxes, depreciation and amortization (“EBITDA”). We calculate Services EBITDA by using adjusted pretax operating income as described above, further adjusted to remove the impact of depreciation and corporate allocations for interest and operating expenses. We have presented Services EBITDA to facilitate comparisons with other services companies, since it is a widely accepted measure of performance in the services industry.
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. Exhibit G also contains the reconciliation of Services EBITDA to the most comparable GAAP measure, pretax income from continuing operations.
Total adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share and Services EBITDA 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), adjusted diluted net operating income (loss) per share or EBITDA 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 Incomefrom Continuing Operations
2016 2015(In thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Adjusted pretax operating income (loss): Mortgage Insurance (1) $ 140,132 $ 125,904 $ 115,905 $ 145,426 $ 125,892 Services (9,913 ) (1,797 ) (279 ) 1,834 (1,991 ) Total adjusted pretax operating income 130,219 124,107 115,626 147,260 123,901 Net gains (losses) on investments and other financial instruments (2) 31,286 (13,402 ) 3,868 28,448 16,779 Loss on induced conversion and debt extinguishment (55,570 ) (2,320 ) (11 ) (91,876 ) — Acquisition-related expenses (3) (205 ) (266 ) (525 ) (567 ) (207 ) Amortization and impairment of intangible assets (3) (3,328 ) (3,409 ) (3,273 ) (3,281 ) (3,023 ) Consolidated pretax income from continuing operations $ 102,402 $ 104,710 $ 115,685 $ 79,984 $ 137,450(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)
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.
(3)
Please see Exhibit F for the definition of this line item.
Reconciliation of Adjusted Diluted Net Operating Income Per Share (1) to Net Income Per Sharefrom Continuing Operations
2016 2015 Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Adjusted diluted net operating income per share $ 0.37 $ 0.34 $ 0.31 $ 0.40 $ 0.35 After tax per share impact: Net gains (losses) on investments and other financial instruments 0.08 (0.03 ) 0.01 0.07 0.04 Loss on induced conversion and debt extinguishment (0.15 ) (0.01 ) — (0.28 ) — Acquisition-related expenses — — — — — Amortization and impairment of intangible assets (0.01 ) (0.01 ) (0.01 ) (0.01 ) (0.01 ) Difference between statutory and effective tax rate — 0.03 (0.02 ) 0.02 0.01 Net income per share from continuing operations $ 0.29 $ 0.32 $ 0.29 $ 0.20 $ 0.39(1)
Calculated using the company’s statutory tax rate.
Radian Group Inc. and Subsidiaries
Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit G (page 2 of 2)
Reconciliation of Services Segment EBITDA to Consolidated Pretax Income
from Continuing Operations
2016 2015(In thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Services EBITDA $ (3,079 ) $ 4,197 $ 6,266 $ 8,054 $ 3,871 Allocation of corporate operating expenses to Services (1,751 ) (968 ) (1,567 ) (1,307 ) (981 ) Allocation of corporate interest expenses to Services (4,422 ) (4,414 ) (4,423 ) (4,431 ) (4,432 ) Services depreciation and amortization (661 ) (612 ) (555 ) (482 ) (449 ) Services adjusted pretax operating (loss) income (9,913 ) (1,797 ) (279 ) 1,834 (1,991 ) Mortgage Insurance adjusted pretax operating income 140,132 125,904 115,905 145,426 125,892 Total adjusted pretax operating income 130,219 124,107 115,626 147,260 123,901 Net gains (losses) on investments and other financial instruments 31,286 (13,402 ) 3,868 28,448 16,779 Loss on induced conversion and debt extinguishment (55,570 ) (2,320 ) (11 ) (91,876 ) — Acquisition-related expenses (205 ) (266 ) (525 ) (567 ) (207 ) Amortization and impairment of intangible assets (3,328 ) (3,409 ) (3,273 ) (3,281 ) (3,023 ) Consolidated pretax income from continuing operations $ 102,402 $ 104,710 $ 115,685 $ 79,984 $ 137,450On a consolidated basis, “adjusted pretax operating income” and “adjusted diluted net operating income per share” are measures not determined in accordance with GAAP. "Services EBITDA" is also a non-GAAP measure. 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, adjusted diluted net operating income per share or EBITDA 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
2016 2015($ in millions)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Total primary new insurance written $ 8,071 $ 9,099 $ 11,176 $ 11,751 $ 9,385Percentage of primary new insurance written by FICO score
>=740
58.4 % 60.3 % 61.0 % 63.0 % 63.6 %680-739
33.7 32.2 31.9 30.8 30.3620-679
7.9 7.5 7.1 6.2 6.1 Total Primary 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %Percentage of primary new insurance written
Direct monthly and other premiums 71 % 71 % 73 % 68 % 63 % Direct single premiums 29 % 29 % 27 % 32 % 37 % Net single premiums 19 % (1) N/A N/A N/A N/A Refinances 19 % 17 % 13 % 23 % 33 % LTV 95.01% and above 3.7 % 3.6 % 3.5 % 3.2 % 1.8 % 90.01% to 95.00% 50.5 % 49.5 % 51.5 % 49.4 % 48.4 % 85.01% to 90.00% 33.1 % 34.4 % 34.1 % 34.0 % 33.3 % 85.00% and below 12.7 % 12.5 % 10.9 % 13.4 % 16.5 %(1)
Represents 29% of direct single premiums written, after consideration of the 35% single premium NIW ceded under the Single Premium QSR.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Primary Insurance in Force and Risk in Force by Product, Statutory Capital Ratios
Exhibit I
March 31, December 31, September 30, June 30, March 31, ($ in millions) 2016 2015 2015 2015 2015Primary insurance in force (1)
Flow $ 167,526 $ 167,469 $ 166,527 $ 164,137 $ 162,832 Structured 7,860 8,115 8,339 8,555 9,309 Total Primary $ 175,386 $ 175,584 $ 174,866 $ 172,692 $ 172,141 Prime $ 165,526 $ 165,291 $ 164,060 $ 161,397 $ 160,452 Alt-A 5,907 6,176 6,531 6,857 7,122 A minus and below 3,953 4,117 4,275 4,438 4,567 Total Primary $ 175,386 $ 175,584 $ 174,866 $ 172,692 $ 172,141Primary risk in force (1) (2)
Flow $ 42,861 $ 42,771 $ 42,454 $ 41,706 $ 41,256 Structured 1,805 1,856 1,910 1,957 2,133 Total Primary $ 44,666 $ 44,627 $ 44,364 $ 43,663 $ 43,389 Flow Prime $ 41,211 $ 41,036 $ 40,629 $ 39,781 $ 39,251 Alt-A 1,010 1,061 1,124 1,191 1,243 A minus and below 640 674 701 734 762 Total Flow $ 42,861 $ 42,771 $ 42,454 $ 41,706 $ 41,256 Structured Prime $ 1,101 $ 1,134 $ 1,155 $ 1,182 $ 1,341 Alt-A 356 366 386 397 410 A minus and below 348 356 369 378 382 Total Structured $ 1,805 $ 1,856 $ 1,910 $ 1,957 $ 2,133 Total Prime $ 42,312 $ 42,170 $ 41,784 $ 40,963 $ 40,592 Alt-A 1,366 1,427 1,510 1,588 1,653 A minus and below 988 1,030 1,070 1,112 1,144 Total Primary $ 44,666 $ 44,627 $ 44,364 $ 43,663 $ 43,389Percentage of primary risk in force
Direct monthly and other premiums 69 % 69 % 70 % 70 % 70 % Direct single premiums 31 % 31 % 30 % 30 % 30 % Net single premiums (3) 25 % 30 % 30 % 29 % 29 %Statutory Capital Ratios
Risk to capital ratio-Radian Guaranty only 12.5:1 (4) 14.3:1 16.5:1 16.5:1 17.1:1 Risk to capital ratio-Mortgage Insurance combined 12.9:1 (4) 14.6:1 17.9:1 18.0:1 19.1:1(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 3.0% of our total risk in force for all periods presented.
(3)
Represents RIF after giving effect to all reinsurance ceded ("Net RIF").
(4)
Preliminary.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Percentage of Primary Risk in Force by FICO, LTV and Policy Year(1)
Exhibit J
March 31, December 31, September 30, June 30, March 31, ($ in millions) 2016 2015 2015 2015 2015Percentage of primary risk in force by FICO score
Flow >=740 58.2 % 58.3 % 58.2 % 58.1 % 58.1 % 680-739 30.7 30.5 30.3 30.2 30.0 620-679 10.0 10.1 10.3 10.5 10.6 <=619 1.1 1.1 1.2 1.2 1.3 Total Flow 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Structured >=740 29.3 % 29.4 28.9 % 28.7 % 31.1 % 680-739 27.8 27.7 27.9 27.9 28.1 620-679 25.0 25.0 25.2 25.4 24.1 <=619 17.9 17.9 18.0 18.0 16.7 Total Structured 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Total >=740 57.0 % 57.1 % 57.0 % 56.7 % 56.8 % 680-739 30.6 30.3 30.2 30.1 29.8 620-679 10.7 10.8 10.9 11.2 11.3 <=619 1.7 1.8 1.9 2.0 2.1 Total Primary 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %Percentage of primary risk in force by LTV
95.01% and above 7.2 % 7.3 % 7.4 % 7.6 % 7.9 % 90.01% to 95.00% 50.9 50.4 49.8 49.0 48.2 85.01% to 90.00% 33.7 34.0 34.3 34.6 35.0 85.00% and below 8.2 8.3 8.5 8.8 8.9 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %Percentage of primary risk in force by policy year
2005 and prior
6.0 % 6.3 % 6.8 % 7.3 % 7.8 %2006
3.6 3.7 3.9 4.2 4.42007
8.4 8.7 9.1 9.6 10.22008
6.0 6.3 6.6 7.0 7.52009
1.5 1.7 1.8 2.0 2.32010
1.3 1.4 1.5 1.7 2.02011
2.7 2.9 3.1 3.5 3.92012
10.6 11.2 12.0 13.0 14.22013
17.0 18.1 19.2 20.8 22.42014
16.3 17.1 18.0 19.0 20.02015
22.0 22.6 18.0 11.9 5.32016
4.6 — % — % — % — % Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Primary risk in force on defaulted loans (2) $ 1,562 $ 1,625 $ 1,666 $ 1,753 $ 1,883(1)
Includes amounts ceded under our reinsurance agreements.
(2)
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
2016 2015($ in thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Net claims paid Prime $ 74,432 $ 56,900 $ 65,396 $ 83,489 $ 76,186 Alt-A 28,929 21,343 18,966 23,260 19,999 A minus and below 13,196 11,530 14,028 14,965 15,141 Total primary claims paid 116,557 89,773 98,390 121,714 111,326 Pool 7,389 6,477 8,721 10,798 8,874 Second-lien and other 345 (143 ) (16 ) (53 ) (111 ) Subtotal 124,291 96,107 107,095 132,459 120,089 Impact of captive terminations (120 ) (65 ) — — (12,000 ) Impact of settlements 3,500 80,426 61,994 79,557 99,006 Total $ 127,671 $ 176,468 $ 169,089 $ 212,016 $ 207,095 Average claim paid (1) Prime $ 47.7 $ 46.9 $ 46.2 $ 48.1 $ 44.0 Alt-A 63.0 61.7 60.2 59.5 54.6 A minus and below 36.8 40.6 42.5 40.1 35.9 Total primary average claims paid 49.0 48.7 47.8 48.7 44.2 Pool 53.2 56.3 51.3 69.7 51.5 Total $ 48.9 $ 48.9 $ 47.8 $ 49.6 $ 44.5 Average primary claim paid (2) $ 49.6 $ 50.5 $ 48.5 $ 49.6 $ 45.3 Average total claim paid (2) $ 49.5 $ 50.6 $ 48.5 $ 50.4 $ 45.5($ in thousands, except primary reserve per primary default amounts)
March 31,2016 December 31,2015 September 30,2015 June 30,2015 March 31,2015 Reserve for losses by category Prime $ 438,598 $ 480,481 $ 519,572 $ 562,918 $ 640,919 Alt-A 183,189 203,706 234,772 256,854 278,350 A minus and below 116,835 129,352 137,441 148,043 163,390 IBNR and other 79,051 83,066 107,179 125,038 167,204 LAE 23,600 26,108 41,464 48,141 53,210 Reinsurance recoverable (3) 8,239 8,286 11,071 11,677 13,365 Total primary reserves 849,512 930,999 1,051,499 1,152,671 1,316,438 Pool insurance 38,843 42,084 43,234 47,902 62,943 IBNR and other 1,050 1,118 949 891 1,227 LAE 1,227 1,335 1,983 2,353 3,051 Total pool reserves 41,120 44,537 46,166 51,146 67,221 Total 1st lien reserves 890,632 975,536 1,097,665 1,203,817 1,383,659 Second-lien and other 716 863 905 975 1,055 Total reserves $ 891,348 $ 976,399 $ 1,098,570 $ 1,204,792 $ 1,384,714 1st lien reserve per default Primary reserve per primary default excluding IBNR and other $ 24,959 $ 24,019 $ 26,237 $ 27,279 $ 28,423(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
March 31, December 31, September 30,June 30,
March 31, 2016 2015 2015 2015 2015Default Statistics
Primary Insurance:Prime
Number of insured loans 817,236 816,797 812,657 802,719 801,332 Number of loans in default 19,510 22,223 22,328 23,237 25,114 Percentage of loans in default 2.39 % 2.72 % 2.75 % 2.89 % 3.13 %Alt-A
Number of insured loans 30,990 32,411 34,166 35,927 37,468 Number of loans in default 5,138 5,813 6,318 6,949 7,480 Percentage of loans in default 16.58 % 17.94 % 18.49 % 19.34 % 19.96 %A minus and below
Number of insured loans 30,681 31,902 33,018 34,224 35,425 Number of loans in default 6,221 7,267 7,229 7,490 7,846 Percentage of loans in default 20.28 % 22.78 % 21.89 % 21.89 % 22.15 % Total Primary Number of insured loans 878,907 881,110 879,841 872,870 874,225 Number of loans in default (1) 30,869 35,303 35,875 37,676 40,440 Percentage of loans in default 3.51 % 4.01 % 4.08 % 4.32 % 4.63 %(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:
March 31, December 31, September 30,June 30,
March 31, 2016 2015 2015 2015 2015 Number of loans in default 2,339 2,821 2,993 3,246 3,715
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - QSR, Captives and Persistency
Exhibit M (page 1 of 2)
2016 2015($ in thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1Initial and Second Quota Share Reinsurance (“QSR”) Transactions
QSR ceded premiums written $7,962
$ 6,934 $ 8,467 $ 4,216 $ 10,596 % of premiums written 3.4 % 2.9 % 3.4 % 1.7 % 4.2 % QSR ceded premiums earned $ 11,325 $ 10,523 $ 12,201 $ 9,465 $ 14,786 % of premiums earned 4.7 % 4.4 % 5.1 % 3.8 % 6.1 % Ceding commissions written $ 2,270 $ 2,553 $ 2,743 $ 2,982 $ 3,165 Ceding commissions earned $ 5,739 $ 4,921 $ 4,026 $ 5,363 $ 6,664 Profit commission $ — $ 1,559 $ 678 $ 5,760 $ — Risk in force included in QSR (1) $2,018,468
$ 2,131,030 $ 2,253,913 $ 2,394,985 $ 2,575,060Single Premium QSR Transaction
QSR ceded premiums written $ 197,593 N/A N/A N/A N/A % of premiums written 84.7 % N/A N/A N/A N/A QSR ceded premiums earned $ 5,994 N/A N/A N/A N/A % of premiums earned 2.5 % N/A N/A N/A N/A Ceding commissions written $ 50,932 N/A N/A N/A N/A Ceding commissions earned $ 3,032 N/A N/A N/A N/A Profit commission $6,134
N/A N/A N/A N/A Risk in force included in QSR (1) $3,308,057
N/A N/A N/A N/A(1) Included in primary risk in force.
In the first quarter of 2016, the Single Premium QSR decreased the percentage of Radian’s single-premium risk in force, net of reinsurance ceded, from 31 to 25 percent. The Single Premium QSR had a negligible impact on earnings for the first quarter 2016, as follows:
Three Months EndedMarch 31, 2016($ in thousands)
Before
Single
Premium
QSR
Impact of
Single
Premium
QSR
As Reported Net premiums earned $ 226,944 $ (5,994 ) (1) $ 220,950 Provision for losses (43,811 ) 536 (43,275 ) Policy acquisition costs (6,515 ) 126 (6,389 ) Operating expenses (61,698 ) 2,906 (58,792 ) Net adjusted pretax operating income $ 114,920 $ (2,426 ) $ 112,494(1)
Net of profit commission of $6.1 million.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - QSR, Captives and Persistency
Exhibit M (page 2 of 2)
2016 2015($ in thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 11st Lien Captives
Premiums earned ceded to captives $ 1,869 $ 2,268 $ 2,434 $ 2,700 $ 2,585 % of total premiums earned 0.8 % 1.0 % 1.0 % 1.1 % 1.1 % Insurance in force included in captives (1) 2.1 % 2.1 % 2.2 % 2.4 % 2.5 % Risk in force included in captives (1) 1.7 % 1.9 % 2.1 % 2.2 % 2.4 % Persistency (twelve months ended) 79.4 % 78.8 % 79.2 % 80.1 % 82.6 % Persistency (quarterly, annualized) 82.3 % 81.8 % 80.5 % 76.2 % 80.3 %(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.
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, 2015 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/20160427005775/en/
Radian Group Inc.Emily Riley, 215-231-1035emily.riley@radian.biz
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