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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 | |
---|---|---|---|---|---|---|---|---|
0.45 | 1.29% | 35.36 | 35.39 | 34.695 | 35.08 | 450,557 | 05:00:01 |
-- Net income of $76 million or $0.34 per diluted share –
-- Adjusted diluted net operating income per share of $0.37 –
-- New MI business written grows 25%; MI in force increases 6% year-over-year –
-- Book value per share increases 9% year-over-year to $13.58 –
Radian Group Inc. (NYSE: RDN) today reported net income for the quarter ended March 31, 2017, of $76.5 million, or $0.34 per diluted share. This compares to net income for the quarter ended March 31, 2016, of $66.2 million, or $0.29 per diluted share. Consolidated pretax income for the quarter ended March 31, 2017, was $114.7 million, which compares to consolidated pretax income of $102.4 million for the quarter ended March 31, 2016.
Book value per share at March 31, 2017, was $13.58, compared to $13.39 at December 31, 2016, and an increase of 9 percent from $12.42 at March 31, 2016.
Key Financial Highlights (dollars in millions, except per share data)
Quarter EndedMarch 31, 2017
Quarter EndedMarch 31, 2016
PercentChange
Net income $76.5 $66.2 16 % Diluted net income per share $0.34 $0.29 17 % Pretax income $114.7 $102.4 12 % Adjusted pretax operating income $125.3 $130.2 (4 %) Adjusted diluted net operatingincome per share *
$0.37 $0.37 -- Net premiums earned – insurance $221.8 $221.0 -- New Mortgage Insurance Written (NIW) $10,055 $8,071 25 % Mortgage insurance in force 185.9 175.4 6 % Book value per share $13.58 $12.42 9 %* Adjusted diluted net operating income per share is calculated using the company’s statutory tax rate of 35 percent.
Adjusted pretax operating income for the quarter ended March 31, 2017, was $125.3 million, compared to $130.2 million for the quarter ended March 31, 2016. Adjusted diluted net operating income per share for the quarter ended March 31, 2017, was $0.37, flat to $0.37 for the quarter ended March 31, 2016. See “Non-GAAP Financial Measures” below as well as Exhibits F and G for additional details regarding these adjusted measures.
“I am pleased to report strong first quarter results for Radian, including year over year growth in net income, book value and new MI business written,” said Radian’s Chief Executive Officer Rick Thornberry. “As persistency rises, we expect our large, high-quality MI in-force portfolio to grow and generate future premium revenue. This is the primary driver of future earnings for Radian.”
Thornberry added, “After nearly two months with Radian as CEO, my excitement about the prospects ahead continues to grow. I decided to join the company based on the excellent businesses, great team, diversified set of products and services, high quality portfolio, and the institutional commitment to serve customers. Those qualities, along with a strong capital base, solid profitability and excellent market opportunity, are a winning combination.”
FIRST QUARTER HIGHLIGHTS
Mortgage Insurance
Mortgage and Real Estate Services
Consolidated Expenses
Other operating expenses were $68.4 million in the first quarter, compared to $62.4 million in the fourth quarter of 2016, and $57.2 million in the first quarter of last year.
Details regarding notable variable items impacting other operating expenses may be found in Exhibit D.
CAPITAL AND LIQUIDITY UPDATE
CONFERENCE CALL
Radian will discuss first quarter financial results in a conference call today, Thursday, April 27, 2017, 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 800.230.1096 inside the U.S., or 612.332.0228 for international callers, using passcode 422045 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 422045.
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 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). Adjusted pretax operating income adjusts GAAP pretax income 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 adjusted EBITDA is calculated by using the Services segment’s adjusted pretax operating income as described above, further adjusted to remove the impact of depreciation and corporate allocations for interest and operating expenses. Services adjusted 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 historical trend information, 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: Net Premiums Earned – Insurance and Other Operating Expenses Exhibit E: Segment Information Exhibit F: Definition of Consolidated Non-GAAP Financial Measures Exhibit G: Consolidated Non-GAAP Financial Measure Reconciliations Exhibit H: Mortgage Insurance Supplemental Information New Insurance Written Exhibit I: Mortgage Insurance Supplemental Information Primary Insurance in Force and Risk in Force Exhibit J: Mortgage Insurance Supplemental Information Claims and Reserves Exhibit K: Mortgage Insurance Supplemental Information Default Statistics Exhibit L: Mortgage Insurance Supplemental Information Captives, QSR and PersistencyRadian Group Inc. and Subsidiaries Condensed Consolidated Statements of Operations Trend Schedule (1) Exhibit A 2017 2016
(In thousands, except per-share amounts)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Revenues: Net premiums earned - insurance $ 221,800 $ 233,585 $ 238,149 $ 229,085 $ 220,950 Services revenue 38,027 49,905 45,877 40,263 32,849 Net investment income 31,032 28,996 28,430 28,839 27,201 Net gains (losses) on investments and other financial instruments (2,851 ) (38,773 ) 7,711 30,527 31,286 Other income 746 736 716 1,454 666 Total revenues 288,754 274,449 320,883 330,168 312,952 Expenses: Provision for losses 46,913 54,287 55,785 49,725 42,991 Policy acquisition costs 6,729 5,579 6,119 5,393 6,389 Cost of services 28,375 33,812 29,447 27,365 23,550 Other operating expenses 68,377 62,416 62,119 63,173 57,188 Interest expense 15,938 17,269 19,783 22,546 21,534 Loss on induced conversion and debt extinguishment 4,456 — 17,397 2,108 55,570 Amortization and impairment of intangible assets 3,296 3,290 3,292 3,311 3,328 Total expenses 174,084 176,653 193,942 173,621 210,550 Pretax income 114,670 97,796 126,941 156,547 102,402 Income tax provision 38,198 36,707 44,138 58,435 36,153 Net income $ 76,472 $ 61,089 $ 82,803 $ 98,112 $ 66,249 Diluted net income per share $ 0.34 $ 0.27 $ 0.37 $ 0.44 $ 0.29 Selected Mortgage Insurance Key Ratios Loss ratio (1) 21.3 % 23.4 % 23.6 % 21.9 % 19.6 % Expense ratio (1) 27.1 % 22.7 % 22.7 % 23.6 % 21.8 %(1)
Calculated on a GAAP basis using net premiums earned.
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: 2017 2016
(In thousands, except per-share amounts)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Net income: Net income—basic $ 76,472 $ 61,089 $ 82,803 $ 98,112 $ 66,249 Adjustment for dilutive Convertible Senior Notes due 2019, net of tax (1) (215 ) 665 848 913 3,390 Net income—diluted $ 76,257 $ 61,754 $ 83,651 $ 99,025 $ 69,639 Average common shares outstanding—basic 214,925 214,481 214,387 214,274 203,706 Dilutive effect of Convertible Senior Notes due 2017 (2) 701 421 178 12 — Dilutive effect of Convertible Senior Notes due 2019 1,854 6,417 8,274 8,928 33,583 Dilutive effect of stock-based compensation arrangements (2) 4,017 3,457 3,129 2,989 2,418 Adjusted average common shares outstanding—diluted 221,497 224,776 225,968 226,203 239,707 Basic net income per share $ 0.36 $ 0.28 $ 0.39 $ 0.46 $ 0.33 Diluted net income per share $ 0.34 $ 0.27 $ 0.37 $ 0.44 $ 0.29(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. Due to the January 2017 settlement of our obligations with respect to the remaining Convertible Senior Notes due 2019, a benefit was recorded to adjust estimated accrued expense to actual amounts.
(2)
The following number of shares of our common stock equivalents issued under our share-based compensation arrangements and convertible debt were not included in the calculation of diluted net income per share because they were anti-dilutive:
2017 2016(In thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Shares of Convertible Senior Notes due 2017 — — — — 1,902 Shares of common stock equivalents 445 1,042 1,045 1,042 709Radian 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)
2017 2016 2016 2016 2016 Assets: Investments $ 4,437,716 $ 4,462,430 $ 4,565,748 $ 4,636,914 $ 4,470,172 Cash 77,954 52,149 46,356 55,062 64,844 Restricted cash 8,436 9,665 10,312 9,298 10,060 Accounts and notes receivable 73,794 77,631 94,692 77,170 66,340 Deferred income taxes, net 369,209 411,798 401,442 444,513 518,059 Goodwill and other intangible assets, net 273,068 276,228 279,400 282,703 286,069 Prepaid reinsurance premium 230,148 229,438 229,754 229,231 228,718 Other assets 357,435 343,835 422,123 332,372 325,129 Total assets $ 5,827,760 $ 5,863,174 $ 6,049,827 $ 6,067,263 $ 5,969,391 Liabilities and stockholders’ equity: Unearned premiums $ 684,797 $ 681,222 $ 680,973 $ 677,599 $ 673,887 Reserve for losses and loss adjustment expense 726,169 760,269 821,934 848,379 891,348 Long-term debt 1,008,777 1,069,537 1,067,666 1,278,051 1,286,466 Reinsurance funds withheld 167,427 158,001 177,147 163,360 151,104 Other liabilities 319,282 321,859 413,401 294,507 306,188 Total liabilities 2,906,452 2,990,888 3,161,121 3,261,896 3,308,993 Equity component of currently redeemable convertible senior notes 883 — — — — Common stock 233 232 232 232 232 Treasury stock (893,372 ) (893,332 ) (893,197 ) (893,176 ) (893,176 ) Additional paid-in capital 2,743,594 2,779,891 2,778,860 2,781,136 2,773,349 Retained earnings 1,073,333 997,890 937,338 855,070 757,202 Accumulated other comprehensive income (loss) (3,363 ) (12,395 ) 65,473 62,105 22,791 Total stockholders’ equity 2,920,425 2,872,286 2,888,706 2,805,367 2,660,398 Total liabilities and stockholders’ equity $ 5,827,760 $ 5,863,174 $ 6,049,827 $ 6,067,263 $ 5,969,391 Shares outstanding 215,091 214,521 214,405 214,284 214,265 Book value per share $ 13.58 $ 13.39 $ 13.47 $ 13.09 $ 12.42 Statutory Capital Ratios Risk to capital ratio-Radian Guaranty only 14.3 :1(1)
13.5 :1 13.7 :1 14.0 :1 12.5 :1 Risk to capital ratio-Mortgage Insurance combined 13.4 :1 (1) 13.6 :1 13.9 :1 14.2 :1 12.9 :1(1)
Preliminary.
Radian Group Inc. and Subsidiaries Net Premiums Earned - Insurance and Other Operating Expenses Exhibit D 2017 2016
(In thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Premiums earned - insurance: Direct $ 236,062 $ 251,751 $ 258,074 $ 248,938 $ 240,330 Assumed 7 8 9 9 9 Ceded (14,269 ) (18,174 ) (19,934 ) (19,862 ) (19,389 ) Net premiums earned - insurance $ 221,800 $ 233,585 $ 238,149 $ 229,085 $ 220,950 Notable variable items: (1) Single Premium Policy cancellations, net of reinsurance $ 5,879 $ 15,702 $ 18,448 $ 14,841 $ 9,783 Profit commission - reinsurance (2) 5,888 8,458 8,922 7,891 6,134 Total $ 11,767 $ 24,160 $ 27,370 $ 22,732 $ 15,917 Other operating expenses $ 68,377 $ 62,416 $ 62,119 $ 63,173 $ 57,188 Notable variable items: (3) Technology upgrade project (4) $ 3,512 $ 3,648 $ 2,440 $ 2,443 $ 2,271 Severance costs 961 888 1,137 277 3,040 Retirement and consulting agreement (5) 3,622 — — — — Incentive compensation (6) (7) 7,447 9,072 12,652 14,183 6,235 Ceding commissions (8) (3,864 ) (5,105 ) (5,460 ) (5,006 ) (4,413 ) Total $ 11,678 $ 8,503 $ 10,769 $ 11,897 $ 7,133(1)
Affecting net premiums earned - insurance. These amounts are included in net premiums earned - insurance.
(2)
The amounts represent the profit commission on the Single Premium QSR Transaction.
(3)
Affecting other operating expenses. These amounts are included in other operating expenses.
(4)
Represents the expense impact of certain costs incurred in our initiative to significantly upgrade our technology systems.
(5)
The amount represents expenses associated with retirement and consulting agreements entered into in February 2017 with our former CEO. Additional expenses are expected to be recognized throughout the year. A portion of both the current and future expenses are subject to change, based on the Company's and former CEO's future performance.
(6)
The expense relates to short- and long-term incentive programs.
(7)
Incentive compensation expense is shown net of deferred policy acquisition costs.
(8)
Ceding commissions are shown net of deferred policy acquisition costs.
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 Services adjusted EBITDA, along with reconciliations to consolidated GAAP measures, see Exhibits F and G. Mortgage Insurance 2017 2016(In thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Net premiums written - insurance $ 224,665 $ 234,172 $ 240,999 $ 232,353 $ 26,310(1)
(Increase) decrease in unearned premiums (2,865 ) (587 ) (2,850 ) (3,268 ) 194,640 Net premiums earned - insurance 221,800 233,585 238,149 229,085 220,950 Net investment income 31,032 28,996 28,430 28,839 27,201 Other income 746 736 716 1,454 666 Total 253,578 263,317 267,295 259,378 248,817 Provision for losses 47,232 54,675 56,151 50,074 43,275 Policy acquisition costs 6,729 5,579 6,119 5,393 6,389 Other operating expenses before corporate allocations 39,289 37,773 35,940 34,365 32,546 Total (2) 93,250 98,027 98,210 89,832 82,210 Adjusted pretax operating income before corporate allocations 160,328 165,290 169,085 169,546 166,607 Allocation of corporate operating expenses 14,186 9,652 11,911 14,286 9,329 Allocation of interest expense 11,509 12,843 15,360 18,124 17,112 Adjusted pretax operating income $ 134,633 $ 142,795 $ 141,814 $ 137,136 $ 140,166Services
2017 2016(In thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Services revenue (2) $ 40,089 $ 52,558 $ 48,033 $42,210 $ 34,448 Cost of services 28,690 34,130 29,655 27,730 23,854 Other operating expenses before corporate allocations 12,604 14,842 13,575 13,030 14,368 Total 41,294 48,972 43,230 40,760 38,222 Adjusted pretax operating income (loss) before corporate allocations (3) (1,205 ) 3,586 4,803 1,450 (3,774 ) Allocation of corporate operating expenses 3,718 1,738 2,265 2,779 1,751 Allocation of interest expense 4,429 4,426 4,423 4,422 4,422 Adjusted pretax operating income (loss) $ (9,352 ) $ (2,578 ) $ (1,885)
$(5,751
)
$
(9,947
)(1)
Net of ceded premiums written under the Single Premium QSR transaction of $197.6 million.
(2)
Inter-segment information:
2017 2016 Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Inter-segment expense included in Mortgage Insurance segment $ 2,062 $ 2,653 $ 2,156 $ 1,947 $ 1,599 Inter-segment revenue included in Services segment 2,062 2,653 2,156 1,947 1,599
Radian Group Inc. and Subsidiaries
Segment Information
Exhibit E (page 2 of 2)
(3)
Supplemental information for Services adjusted EBITDA (see definition in Exhibit F):
2017 2016 Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Adjusted pretax operating income (loss) before corporate allocations $ (1,205 ) $ 3,586 $ 4,803 $ 1,450 $ (3,774 ) Depreciation and amortization 858 829 884 749 663 Services adjusted EBITDA $ (347 ) $ 4,415 $ 5,687 $ 2,199 $ (3,111 )Selected balance sheet information for our segments, as of the periods indicated, is as follows:
At March 31, 2017 (In thousands)MortgageInsurance
Services Total Total assets $ 5,475,502 $ 352,258 $ 5,827,760 At December 31, 2016 (In thousands)MortgageInsurance
Services Total Total assets $ 5,506,338 $ 356,836 $ 5,863,174
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 “adjusted pretax operating income” and “adjusted diluted net operating income per share,” non-GAAP financial measures for the consolidated company, 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 operating trends and enabling more meaningful comparisons with our peers. Although on a consolidated basis “adjusted pretax operating income” and “adjusted diluted net operating income 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 (Radian'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 is defined as GAAP pretax income excluding 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 is calculated by dividing (i) adjusted pretax operating income 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 share-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 excludes certain items that have occurred in the past and are expected to occur in the future, the excluded items represent those that are: (i) not viewed as part of the operating performance of our primary activities or (ii) not expected to result in an economic impact equal to the amount reflected in pretax income (loss). 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 securities. These valuation adjustments may not necessarily result in realized 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). (2)Loss on induced conversion and debt extinguishment. Gains or losses on early extinguishment of debt and losses incurred to purchase our convertible debt prior to maturity are discretionary activities that are undertaken in order to take advantage of market opportunities to strengthen our financial and capital positions; 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 a measure of earnings before interest, income taxes, depreciation and amortization (“EBITDA”). We calculate Services adjusted 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 adjusted 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 the most comparable GAAP measures, consolidated pretax income and diluted net income per share, to our non-GAAP financial measures for the consolidated company, adjusted pretax operating income and adjusted diluted net operating income per share, respectively. Exhibit G also contains the reconciliation of the most comparable GAAP measure, net income, to Services adjusted EBITDA.
Total adjusted pretax operating income, adjusted diluted net operating income per share and Services adjusted EBITDA are not measures of total profitability, and therefore should not be viewed as substitutes for GAAP pretax income, diluted net income per share or net income. Our definitions of adjusted pretax operating income, adjusted diluted net operating income per share or Services adjusted 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 Consolidated Pretax Income to Adjusted Pretax Operating Income 2017 2016(In thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Consolidated pretax income $ 114,670 $ 97,796 $ 126,941 $ 156,547 $ 102,402 Less income (expense) items: Net gains (losses) on investments and other financial instruments (2,851 ) (38,773 ) 7,711 30,527 31,286 Loss on induced conversion and debt extinguishment (4,456 ) — (17,397 ) (2,108 ) (55,570 ) Acquisition-related expenses (1) (8 ) (358 ) (10 ) 54 (205 ) Amortization and impairment of intangible assets (3,296 ) (3,290 ) (3,292 ) (3,311 ) (3,328 ) Total adjusted pretax operating income (2) $ 125,281 $ 140,217 $ 139,929 $ 131,385 $ 130,219(1)
Please see Exhibit F for the definition of this line item.
(2)
Total adjusted pretax operating income consists of adjusted pretax operating income (loss) for each segment as follows:
2017 2016(In thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Adjusted pretax operating income (loss): Mortgage Insurance $ 134,633 $ 142,795 $ 141,814 $ 137,136 $ 140,166 Services (9,352 ) (2,578 ) (1,885 ) (5,751 ) (9,947 ) Total adjusted pretax operating income $ 125,281 $ 140,217 $ 139,929 $ 131,385 $ 130,219
Reconciliation of Diluted Net Income Per Share to Adjusted Diluted Net Operating Income Per Share
2017 2016 Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Diluted net income per share $ 0.34 $ 0.27 $ 0.37 $ 0.44 $ 0.29 Less per-share impact of debt items: Loss on induced conversion and debt extinguishment (0.02 ) — (0.08 ) (0.01 ) (0.23 ) Income tax provision (benefit) (1) (0.01 ) — (0.03 ) — (0.03 ) Per-share impact of debt items (0.01 ) — (0.05 ) (0.01 ) (0.20 ) Less per-share impact of other income (expense) items: Net gains (losses) on investments and other financial instruments (0.01 ) (0.17 ) 0.03 0.13 0.13 Amortization and impairment of intangible assets (0.01 ) (0.02 ) (0.01 ) (0.01 ) (0.01 ) Income tax provision (benefit) on other income (expense) items (2) (0.01 ) (0.07 ) 0.01 0.04 0.04 Difference between statutory and effective tax rate (0.01 ) (0.02 ) — (0.01 ) 0.04 Per-share impact of other income (expense) items (0.02 ) (0.14 ) 0.01 0.07 0.12 Adjusted diluted net operating income per share (2) $ 0.37 $ 0.41 $ 0.41 $ 0.38 $ 0.37(1)
A portion of the loss on induced conversion and debt extinguishment is non-deductible for tax purposes. The income tax benefit is based on the tax deductible loss using the company's federal statutory tax rate of 35%.
(2)
Calculated using the company’s federal statutory tax rate of 35%. Any permanent tax adjustments and state income taxes on these items have been deemed immaterial and are not included.
Radian Group Inc. and Subsidiaries Consolidated Non-GAAP Financial Measure Reconciliations Exhibit G (page 2 of 2) Reconciliation of Net Income to Services Adjusted EBITDA 2017 2016
(In thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Net income $ 76,472 $ 61,089 $ 82,803 $ 98,112 $ 66,249 Less income (expense) items: Net gains (losses) on investments and other financial instruments (2,851 ) (38,773 ) 7,711 30,527 31,286 Loss on induced conversion and debt extinguishment (4,456 ) — (17,397 ) (2,108 ) (55,570 ) Acquisition-related expenses (8 ) (358 ) (10 ) 54 (205 ) Amortization and impairment of intangible assets (3,296 ) (3,290 ) (3,292 ) (3,311 ) (3,328 ) Income tax provision 38,198 36,707 44,138 58,435 36,153 Mortgage Insurance adjusted pretax operating income 134,633 142,795 141,814 137,136 140,166 Services adjusted pretax operating income (loss) (9,352 ) (2,578 ) (1,885 ) (5,751 ) (9,947 ) Less income (expense) items: Allocation of corporate operating expenses to Services (3,718 ) (1,738 ) (2,265 ) (2,779 ) (1,751 ) Allocation of corporate interest expense to Services (4,429 ) (4,426 ) (4,423 ) (4,422 ) (4,422 ) Services depreciation and amortization (858 ) (829 ) (884 ) (749 ) (663 ) Services adjusted EBITDA $ (347 ) $ 4,415 $ 5,687 $ 2,199 $ (3,111 )On a consolidated basis, “adjusted pretax operating income” and “adjusted diluted net operating income per share” are measures not determined in accordance with GAAP. “Services adjusted 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, diluted net income per share or net income. Our definitions of adjusted pretax operating income, adjusted diluted net operating income per share or Services adjusted 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 2017 2016($ in millions)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Total primary new insurance written $ 10,055 $ 13,882 $ 15,656 $ 12,921 $ 8,071Percentage of primary new insurance written by FICO score
>=740 61.3 % 63.4 % 64.2 % 60.9 % 58.4 %680-739
32.7 31.4 30.4 32.2 33.7620-679
6.0 5.2 5.4 6.9 7.9 Total Primary 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %Percentage of primary new insurance written
Direct monthly and other premiums 75 % 73 % 73 % 74 % 71 % Direct single premiums 25 % 27 % 27 % 26 % 29 % Net single premiums (1) 16 % 17 % 17 % 17 % 19 % Refinances 16 % 27 % 22 % 18 % 19 % LTV 95.01% and above 9.2 % 7.4 % 6.0 % 4.8 % 3.7 % 90.01% to 95.00% 47.3 % 43.6 % 47.1 % 50.2 % 50.5 % 85.01% to 90.00% 30.3 % 32.3 % 31.4 % 31.8 % 33.1 % 85.00% and below 13.2 % 16.7 % 15.5 % 13.2 % 12.7 %(1)
Represents the percentage of direct single premiums written, after consideration of the 35% single premium NIW ceded under the Single Premium QSR Transaction.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Primary Insurance in Force and Risk in Force
Exhibit I
March 31, December 31, September 30, June 30, March 31, ($ in millions) 2017 2016 2016 2016 2016 Primary insurance in force (1) Prime $ 177,702 $ 174,927 $ 172,178 $ 168,259 $ 165,526 Alt-A 4,842 5,064 5,363 5,627 5,907 A minus and below 3,315 3,459 3,624 3,786 3,953 Total Primary $ 185,859 $ 183,450 $ 181,165 $ 177,672 $ 175,386Primary risk in force (1) (2)
Prime $ 45,442 $ 44,708 $ 44,075 $ 43,076 $ 42,312 Alt-A 1,118 1,168 1,241 1,302 1,366 A minus and below 834 865 906 946 988 Total Primary $ 47,394 $ 46,741 $ 46,222 $ 45,324 $ 44,666Percentage of primary risk in force
Direct monthly and other premiums 69 % 69 % 69 % 69 % 69 % Direct single premiums 31 % 31 % 31 % 31 % 31 % Net single premiums (3) 25 % 25 % 25 % 25 % 25 %Percentage of primary risk in force by FICO score
>=740 57.9 % 57.6 % 57.4 % 57.1 % 57.0 % 680-739 31.1 31.0 30.9 30.8 30.6 620-679 9.6 9.9 10.2 10.5 10.7 <=619 1.4 1.5 1.5 1.6 1.7 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 % 7.4 % 7.2 % 7.1 % 7.2 % 90.01% to 95.00% 52.6 52.3 52.1 51.6 50.9 85.01% to 90.00% 32.2 32.5 32.8 33.3 33.7 85.00% and below 7.6 7.8 7.9 8.0 8.2 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %Percentage of primary risk in force by policy year
2008 and prior 18.5 % 19.5 % 20.8 % 22.4 % 24.0 %2009
0.9 1.0 1.2 1.3 1.52010
0.8 0.9 1.0 1.2 1.32011
1.8 2.0 2.2 2.5 2.72012
7.4 8.0 8.8 9.7 10.62013
11.8 12.6 13.9 15.5 17.02014
11.2 12.0 13.4 14.9 16.32015
17.3 18.1 19.4 21.0 22.02016
25.0 25.9 19.3 11.5 4.62017
5.3 — — — — Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Primary risk in force on defaulted loans (4) $ 1,224 $ 1,363 $ 1,381 $ 1,398 $ 1,446(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 the percentage of Single Premium RIF, after giving effect to all reinsurance ceded.
(4)
Excludes risk related to loans subject to the Freddie Mac Agreement.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Claims and Reserves
Exhibit J
2017 2016($ in thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1 Net claims paid: (1) Prime $ 52,044 $ 70,151 $ 51,964 $ 56,036 $ 74,432 Alt-A 16,165 27,558 16,334 18,349 28,929 A minus and below 9,460 13,760 9,615 12,315 13,196 Total primary claims paid 77,669 111,469 77,913 86,700 116,557 Pool 4,180 4,788 4,492 5,451 7,389 Second-lien and other 78 (264 ) (234 ) (231 ) 345 Subtotal 81,927 115,993 82,171 91,920 124,291 Impact of captive terminations — 492(171
) (2,619 ) (120 ) Impact of settlements 161 — 705 1,400 3,500 Total net claims paid $ 82,088 $ 116,485 $ 82,705 $ 90,701 $ 127,671 Average net claims paid: (2) Prime $ 50.5 $ 45.5 $ 48.3 $ 48.6 $ 47.7 Alt-A 67.1 65.5 65.3 63.5 63.0 A minus and below 39.6 37.7 41.3 39.9 36.8 Total average net primary claims paid 51.4 47.9 50.0 49.5 49.0 Pool 49.2 45.6 51.0 58.0 53.2 Total average net claims paid $ 50.9 $ 47.6 $ 49.7 $ 49.6 $ 48.9 Average direct primary claims paid (2) (3) $ 51.6 $ 48.2 $ 50.3 $ 49.9 $ 49.6 Average total direct claims paid (2) (3) $ 51.1 $ 47.9 $ 50.0 $ 50.0 $ 49.5($ in thousands, except primary reserve per primary default amounts)
March 31,2017
December 31,2016
September 30,2016
June 30,2016
March 31,2016
Reserve for losses by category Prime $ 362,804 $ 379,845 $ 409,438 $ 420,281 $ 438,598 Alt-A 140,543 148,006 166,349 173,284 183,189 A minus and below 96,373 101,653 106,678 112,001 116,835 IBNR and other 70,651 71,107 73,057 74,639 79,051 LAE 17,550 18,630 21,255 22,389 23,600 Reinsurance recoverable (4) 7,681 6,816 6,448 6,044 8,239 Total primary reserves 695,602 726,057 783,225 808,638 849,512 Pool insurance 28,453 31,853 36,065 36,982 38,843 IBNR and other 603 673 823 897 1,050 LAE 822 932 1,112 1,163 1,227 Reinsurance recoverable (4) 28 35 36 33 — Total pool reserves 29,906 33,493 38,036 39,075 41,120 Total 1st lien reserves 725,508 759,550 821,261 847,713 890,632 Second-lien and other 661 719 673 666 716 Total reserves $ 726,169 $ 760,269 $ 821,934 $ 848,379 $ 891,348 1st lien reserve per default Primary reserve per primary default excluding IBNR and other $ 24,230 $ 22,503 $ 24,049 $ 24,609 $ 24,959(1)
Net of reinsurance recoveries.
(2)
Calculated without giving effect to the impact of the termination of captive transactions and settlements.
(3)
Before reinsurance recoveries.
(4)
Represents ceded losses on captive transactions and quota share reinsurance transactions.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Default Statistics
Exhibit K
March 31, December 31, September 30, June 30, March 31, 2017 2016 2016 2016 2016Default Statistics
Primary Insurance:Prime
Number of insured loans 858,248 849,227 840,534 826,511 817,236 Number of loans in default 16,981 19,101 19,100 19,025 19,510 Percentage of loans in default 1.98 % 2.25 % 2.27 % 2.30 % 2.39 %Alt-A
Number of insured loans 25,425 26,536 28,080 29,445 30,990 Number of loans in default 3,812 4,193 4,545 4,820 5,138 Percentage of loans in default 14.99 % 15.80 % 16.19 % 16.37 % 16.58 %A minus and below
Number of insured loans 26,043 27,115 28,313 29,450 30,681 Number of loans in default 5,000 5,811 5,885 5,982 6,221 Percentage of loans in default 19.20 % 21.43 % 20.79 % 20.31 % 20.28 % Total Primary Number of insured loans 909,716 902,878 896,927 885,406 878,907 Number of loans in default (1) 25,793 29,105 29,530 29,827 30,869 Percentage of loans in default 2.84 % 3.22 % 3.29 % 3.37 % 3.51 %(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, 2017 2016 2016 2016 2016
Number of loans in default
1,395 1,639 1,888 2,180 2,339Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - QSR Transactions, Captives and Persistency
Exhibit L
2017 2016($ in thousands)
Qtr 1 Qtr 4 Qtr 3 Qtr 2 Qtr 1Quota Share Reinsurance (“QSR”) Transactions
QSR ceded premiums written (1) $ 5,457 $ 6,049 $ 6,730 $ 7,356 $ 7,962 % of premiums written 2.3 % 2.4 % 2.6 % 2.9 % 3.4 % QSR ceded premiums earned (1) $ 7,834 $ 9,421 $ 10,597 $ 11,172 $ 11,325 % of premiums earned 3.3 % 3.8 % 4.1 % 4.5 % 4.7 % Ceding commissions written $ 1,559 $ 1,728 $ 1,922 $ 2,099 $ 2,270 Ceding commissions earned (2) $ 3,894 $ 4,374 $ 3,974 $ 3,779 $ 4,446 Profit commission $ — $ — $ — $ — $ — RIF included in QSR Transactions (3) $ 1,488,972 $ 1,578,300 $ 1,718,031 $ 1,872,017 $ 2,018,468Single Premium QSR Transaction
QSR ceded premiums written (1) $ 8,960 $ 11,121 $ 13,004 $ 11,488 $ 197,593 (4 ) % of premiums written 3.7 % 4.4 % 5.0 % 4.6 % 84.7 % QSR ceded premiums earned (1) $ 5,859 $ 8,060 $ 8,608 $ 7,146 $ 5,994 % of premiums earned 2.5 % 3.2 % 3.3 % 2.9 % 2.5 % Ceding commissions written $ 3,712 $ 4,895 $ 5,482 $ 4,844 $ 50,932 Ceding commissions earned (2) $ 2,937 $ 4,130 $ 4,382 $ 3,759 $ 3,032 Profit commission $ 5,888 $ 8,458 $ 8,922 $ 7,891 $ 6,134 RIF included in Single Premium QSR Transaction (3) $ 3,904,402 $ 3,761,648 $ 3,621,993 $ 3,461,464 $ 3,308,057 Total RIF included in QSR Transactions and Single Premium QSR Transaction $ 5,393,374 $ 5,339,948 $ 5,340,024 $ 5,333,481 $ 5,326,5251st Lien Captives
Premiums earned ceded to captives $ 389 $ 503 $ 537 $ 1,346 $ 1,869 % of total premiums earned 0.2 % 0.2 % 0.2 % 0.5 % 0.8 % Persistency Rate (twelve months ended) 77.1 % 76.7 % 78.4 % 79.9 % 79.4 % Persistency Rate (quarterly, annualized) (5) 84.4 % 76.8 % 75.3 % 78.0 % 82.3 %(1)
Net of profit commission.
(2)
Includes amounts reported in policy acquisition costs and other operating expenses.
(3)
Included in primary RIF.
(4)
Includes ceded premiums for policies written in prior periods.
(5)
The Persistency Rate on a quarterly, annualized basis may be impacted by seasonality or other factors, and may not be indicative of full-year trends.
FORWARD-LOOKING STATEMENTS
All statements in this press release 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 where 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. These risks and uncertainties include, without limitation:
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 our Annual Report on Form 10-K for the year ended December 31, 2016, and subsequent reports 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/20170427005367/en/
Radian Group Inc.Emily Riley, 215-231-1035emily.riley@radian.biz
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