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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 | |
---|---|---|---|---|---|---|---|---|
1.13 | 3.78% | 31.00 | 30.57 | 30.0325 | 30.06 | 732,008 | 22:38:25 |
-- Fourth quarter GAAP net income of $148 million, or $0.76 per diluted share, and full year GAAP net income of $394 million, or $2.00 per diluted share --
-- New Insurance Written of $105 billion in new MI business for 2020; setting company record for annual flow mortgage insurance --
-- PMIERs excess Available Assets grows 38% to $1.3 billion (or 40% over the Minimum Required Assets) during the fourth quarter of 2020 --
-- Total Holding Company Liquidity of $1.4 billion --
-- Book value per share grows 11% year-over-year to $22.36 --
Radian Group Inc. (NYSE: RDN) today reported net income for the quarter ended December 31, 2020, of $148.0 million, or $0.76 per diluted share. This compares with net income for the quarter ended December 31, 2019, of $161.2 million, or $0.79 per diluted share.
Net income for the full year 2020 was $393.6 million, or $2.00 per diluted share. This compares to net income for the full year 2019 of $672.3 million, or $3.20 per diluted share.
Key Financial Highlights (dollars in millions, except per-share amounts)
Quarter ended
Year ended
December 31, 2020
September 30, 2020
December 31, 2019
December 31, 2020
December 31, 2019
Net income (1)
$148.0
$135.1 $161.2$393.6 $672.3
Diluted net income per share
$0.76 $0.70 $0.79$2.00 $3.20
Consolidated pretax income
$179.2 $161.2 $205.6$479.4 $849.0
Adjusted pretax operating income (2)
$171.0 $145.0 $224.0$432.1 $854.6
Adjusted diluted net operating income per share (2)(3)
$0.69 $0.59 $0.86$1.74 $3.21
Return on equity(1)(4)
14.1% 13.3% 16.2%9.4% 17.8%
Adjusted net operating return on equity (2)(3)
12.9% 11.3% 17.8%8.2% 17.9%
New Insurance Written (NIW) - mortgage insurance
$29,781 $33,320 $19,953$105,024 $71,327
Net premiums earned - mortgage insurance (5)
$286.8 $283.4 $298.5$1,092.8 $1,134.2
New defaults (6)
14,552 20,508 10,869108,025 40,985
Provision for losses - mortgage insurance
$56.3 $87.8 $34.4$483.3 $131.5
Quarter ended
December 31, 2020
September 30, 2020
December 31, 2019
Book value per share (7)
$22.36
$21.52
$20.13
PMIERs Available Assets (8)
$4,700
$4,469
$3,630
PMIERs excess Available Assets (9)
$1,338
$970
$804
Total Holding Company Liquidity (10)
$1,371
$1,376
$921
Excess Available Resources to
Support PMIERs (11)
$2,674
$2,311
$1,690
Total investments
$6,788
$6,585
$5,659
Primary mortgage insurance in force
$246,144
$245,467
$240,558
Percentage of primary loans in
default (12)
5.2 %
5.9 %
2.0 %
Mortgage insurance loss reserves
$844
$822
$401
(1)
Net income for the fourth quarter and full year 2020 includes a pretax net gain on investments and other financial instruments of $17.4 million and $60.3 million, respectively, compared to net gain on investments and other financial instruments for the fourth quarter and full year 2019 of $4.3 million and $51.7 million, respectively. Net income for the fourth quarter and full year 2019 also includes a pre-tax, non-cash impairment of goodwill and other acquired intangible assets of $18.5 million related to the company's sale of Clayton Services in January 2020.(2)
Adjusted results, including adjusted pretax operating income, adjusted diluted net operating income per share, and adjusted net operating return on equity are non-GAAP financial measures. For definitions and reconciliations of these measures to the comparable GAAP measures, see Exhibits F and G.(3)
Calculated using the company’s statutory tax rate of 21 percent.(4)
Calculated by dividing annualized net income by average stockholders' equity, based on the average of the beginning and ending balances for each period presented.(5)
The fourth quarters of 2020 and 2019 include increases to premiums earned of $11.3 million and $17.4 million, respectively, related to changes in present value estimates for initial premiums on monthly policies that are deferred and not collected until cancellation. The impact of changes in this estimate in other periods is not material.(6)
Represents new defaults in the number of loans reported during the period on loans related to primary mortgage insurance policies.(7)
Accumulated other comprehensive income (loss) impacted book value per share by $1.38 per share as of December 31, 2020, and $0.55 per share as of December 31, 2019.(8)
Represents Radian Guaranty’s Available Assets, calculated in accordance with the Private Mortgage Insurer Eligibility Requirements (PMIERs) financial requirements in effect for each date shown.(9)
Represents Radian Guaranty’s excess or "cushion" of Available Assets over its Minimum Required Assets, calculated in accordance with the PMIERs financial requirements in effect for each date shown.(10)
Represents Radian Group's total liquidity, including the $35 million minimum liquidity requirement and available capacity under its unsecured revolving credit facility.(11)
Represents the sum of: (1) PMIERs excess Available Assets and (2) Total Holding Company Liquidity, net of the $35 million minimum liquidity requirement under the unsecured revolving credit facility.(12)
Represents the number of primary loans in default as a percentage of the total number of insured primary loans.Adjusted pretax operating income for the quarter ended December 31, 2020, was $171.0 million, or $0.69 per diluted share. This compares with adjusted pretax operating income for the quarter ended December 31, 2019 of $224.0 million, or $0.86 per diluted share.
Adjusted pretax operating income for the full year 2020, was $432.1 million, or $1.74 per diluted share. This compares to adjusted pretax operating income for the full year 2019 of $854.6 million, or $3.21 per diluted share.
Book value as of December 31, 2020 was $4.3 billion, an increase of 6 percent compared to $4.0 billion as of December 31, 2019. Book value per share at December 31, 2020, was $22.36, an increase of 11 percent compared to $20.13 at December 31, 2019.
“While our quarterly and full-year results for 2020 were impacted by the pandemic environment, during the year we successfully increased book value per share by 11%, wrote record-breaking levels of new mortgage insurance business and grew revenues in our real estate segment,” said Radian’s Chief Executive Officer Rick Thornberry. “I’m proud to say that our business model weathered the storm as designed, demonstrating the strength and resilience we and the mortgage industry have been building since the last financial crisis in 2009. In 2020, we also took steps to fortify our capital position and increase our financial flexibility, with a focus on lowering the risk profile and through-the-cycle volatility of the business.”
Thornberry added, “Our solid results reflect the dedication of our outstanding team, who continue to support our customers and each other in a demanding, high-volume market. I’m pleased with our ability to operate well with strong momentum throughout a challenging year.”
FOURTH QUARTER AND FULL YEAR HIGHLIGHTS
CAPITAL AND LIQUIDITY UPDATE
Radian Group
Radian Guaranty
CONFERENCE CALL
Radian will discuss fourth quarter and year-end 2020 financial results in a conference call tomorrow, Thursday, February 25, 2021, at 10:00 a.m. Eastern standard time. The conference call will be broadcast live over the Internet at https://radian.com/who-we-are/for-investors/webcasts or at www.radian.com. The call may also be accessed by dialing 888.771.4371 inside the U.S., or 847.585.4405 for international callers, using passcode 50081023 by referencing Radian.
A digital replay of the webcast will be available on the Radian website approximately two hours after the live broadcast ends for a period of two weeks at https://radian.com/who-we-are/for-investors/webcasts using passcode 50081023.
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 at www.radian.com, under Investors.
NON-GAAP FINANCIAL MEASURES
Radian believes that adjusted pretax operating income, adjusted diluted net operating income per share and adjusted net operating return on equity (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 considered in isolation or viewed as substitutes for 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 (loss) is defined as GAAP consolidated pretax income (loss) excluding the effects of: (i) net gains (losses) on investments and other financial instruments; (ii) loss on extinguishment of debt; (iii) amortization and impairment of goodwill and other acquired intangible assets; and (iv) impairment of other long-lived assets and other non-operating items, such as gains (losses) from the sale of lines of business and acquisition-related income and expenses. Adjusted diluted net operating income (loss) per share is calculated by dividing (i) adjusted pretax operating income (loss) attributable to common stockholders, 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. Adjusted net operating return on equity is calculated by dividing annualized adjusted pretax operating income (loss), net of taxes computed using the Company's statutory tax rate, by average stockholders' equity, based on the average of the beginning and ending balances for each period presented.
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 Real Estate segment, representing a measure of earnings before interest, income tax provision (benefit), depreciation and amortization ("EBITDA"). We calculate Real Estate 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. In addition, Real Estate adjusted EBITDA margin is calculated by dividing Real Estate adjusted EBITDA by GAAP total revenue for the Real Estate segment. Real Estate adjusted EBITDA and Real Estate adjusted EBITDA margin are used to facilitate comparisons with other services companies, since they are widely accepted measures of performance in the services industry and are used internally as supplemental measures to evaluate the performance of our Real Estate segment.
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) is ensuring the American dream of homeownership responsibly and sustainably through products and services that include industry-leading mortgage insurance and a comprehensive suite of mortgage, risk, title, valuation, asset management and other real estate services. We are powered by technology, informed by data and driven to deliver new and better ways to transact and manage risk. Visit www.radian.com to learn more about how Radian is shaping the future of mortgage and real estate services.
FINANCIAL RESULTS AND SUPPLEMENTAL INFORMATION CONTENTS (Unaudited)
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 Exhibit E: Segment Information Exhibit F: Definition of Consolidated Non-GAAP Financial Measures Exhibit G: Consolidated Non-GAAP Financial Measure Reconciliations Exhibit H: Mortgage Supplemental Information New Insurance Written Exhibit I: Mortgage Supplemental Information Primary Insurance in Force and Risk in Force Exhibit J: Mortgage Supplemental Information Claims and Reserves Exhibit K: Mortgage Supplemental Information Default Statistics Exhibit L: Mortgage Supplemental Information Reinsurance ProgramsRadian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations Trend Schedule
Exhibit A (page 1 of 2)
2020
2019
(In thousands, except per-share amounts)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Revenues:
Net premiums earned
$
302,140
(1
)
$
286,471
$
249,295
$
277,415
$
301,486
Services revenue
11,440
(1
)
33,943
28,075
31,927
40,031
Net investment income
38,115
36,255
38,723
40,944
41,432
Net gains (losses) on investments and other financial instruments
17,376
17,652
47,276
(22,027
)
4,257
Other income
790
913
1,072
822
818
Total revenues
369,861
375,234
364,441
329,081
388,024
Expenses:
Provision for losses
56,664
88,084
304,418
35,951
34,619
Policy acquisition costs
7,395
10,166
6,015
7,413
6,783
Cost of services
21,600
24,353
17,972
22,141
27,278
Other operating expenses
81,641
69,377
60,582
69,110
80,894
Interest expense
21,169
21,088
16,699
12,194
12,160
Impairment of goodwill
—
—
—
—
4,828
Amortization and impairment of other acquired intangible assets
2,225
961
979
979
15,823
Total expenses
190,694
214,029
406,665
147,788
182,385
Pretax income (loss)
179,167
161,205
(42,224
)
181,293
205,639
Income tax provision (benefit)
31,154
26,102
(12,273
)
40,832
44,455
Net income (loss)
$
148,013
$
135,103
$
(29,951
)
$
140,461
$
161,184
Diluted net income (loss) per share
$
0.76
$
0.70
$
(0.15
)
$
0.70
$
0.79
(1)
Includes the impact of a line item reclassification recorded in the fourth quarter to correct earlier periods in 2020, which increased net premiums earned and decreased services revenue by $7.8 million each. See Exhibit E for additional detail by period related to this out-of-period adjustment reflected in our All Other results.Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations
Exhibit A (page 2 of 2)
Year Ended December 31,
(In thousands, except per-share amounts)
2020
2019
Revenues:
Net premiums earned - insurance
$
1,115,321
$
1,145,349
Services revenue
105,385
154,596
Net investment income
154,037
171,796
Net gains (losses) on investments and other financial instruments
60,277
51,719
Other income
3,597
3,495
Total revenues
1,438,617
1,526,955
Expenses:
Provision for losses
485,117
132,031
Policy acquisition costs
30,989
25,314
Cost of services
86,066
108,324
Other operating expenses
280,710
306,129
Interest expense
71,150
56,310
Loss on extinguishment of debt
—
22,738
Impairment of goodwill
—
4,828
Amortization and impairment of other intangible assets
5,144
22,288
Total expenses
959,176
677,962
Pretax income
479,441
848,993
Income tax provision
85,815
176,684
Net income
$
393,626
$
672,309
Diluted net income per share
$
2.00
$
3.20
Radian Group Inc. and Subsidiaries
Net Income Per Share Trend Schedule
Exhibit B
The calculation of basic and diluted net income (loss) per share was as follows:
2020
2019
(In thousands, except per-share amounts)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Net income (loss) —basic and diluted
$
148,013
$
135,103
$
(29,951
)
$
140,461
$
161,184
Average common shares outstanding—basic (1)
193,248
193,176
193,299
200,161
203,431
Dilutive effect of stock-based compensation arrangements (2)
1,415
980
—
1,658
1,734
Adjusted average common shares outstanding—diluted
194,663
194,156
193,299
201,819
205,165
Basic net income (loss) per share
$
0.77
$
0.70
$
(0.15
)
$
0.70
$
0.79
Diluted net income (loss) per share
$
0.76
$
0.70
$
(0.15
)
$
0.70
$
0.79
(1)
Includes the impact of fully vested shares under our share-based compensation arrangements.(2)
There were no dilutive shares for the three months ended June 30, 2020, as a result of our net loss for the period. The following number of shares of our common stock equivalents issued under our share-based compensation arrangements were not included in the calculation of diluted net income (loss) per share because they were anti-dilutive:
2020
2019
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Shares of common stock equivalents
324
710
2,295
132
—
Year Ended December 31,
(In thousands, except per-share amounts)
2020
2019
Net income - basic and diluted
$
393,626
$
672,309
Average common shares outstanding—basic (1)
195,443
208,773
Dilutive effect of stock-based compensation arrangements (2)
1,199
1,567
Adjusted average common shares outstanding—diluted
196,642
210,340
Basic net income per share
$
2.01
$
3.22
Diluted net income per share
$
2.00
$
3.20
(1)
Includes the impact of fully vested shares under our share-based compensation arrangements.(2)
The following number of shares of our common stock equivalents issued under our share-based compensation arrangements were not included in the calculation of diluted net income per share because they were anti-dilutive:
Year Ended December 31,
(In thousands)
2020
2019
Shares of common stock equivalents
865
221
Radian Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Exhibit C
December 31,
September 30,
June 30,
March 31,
December 31,
(In thousands, except per-share amounts)
2020
2020
2020
2020
2019
Assets:
Investments
$
6,788,442
$
6,584,577
$
6,431,350
$
5,608,627
$
5,658,747
Cash
87,915
82,020
68,387
54,108
92,729
Restricted cash
6,231
4,424
16,279
7,817
3,545
Accrued investment income
34,047
36,093
34,179
32,559
32,333
Accounts and notes receivable
121,294
145,164
110,722
123,381
93,630
Reinsurance recoverables
73,202
66,515
56,852
17,722
16,976
Deferred policy acquisition costs
18,305
17,926
21,774
20,855
20,759
Property and equipment, net
80,457
88,717
89,143
87,915
87,879
Prepaid reinsurance premium
267,638
295,062
330,476
356,104
363,856
Goodwill and other acquired intangible assets, net
23,043
25,268
26,229
27,208
28,187
Other assets
447,447
431,579
383,918
354,136
409,672
Total assets
$
7,948,021
$
7,777,345
$
7,569,309
$
6,690,432
$
6,808,313
Liabilities and stockholders’ equity:
Unearned premiums
$
448,791
$
501,787
$
561,280
$
605,045
$
626,822
Reserve for losses and loss adjustment expense
848,413
825,792
738,885
418,202
404,765
Senior notes
1,405,674
1,404,759
1,403,857
887,584
887,110
FHLB advances
176,483
141,058
175,122
173,760
134,875
Reinsurance funds withheld
278,555
318,773
312,350
302,551
291,829
Net deferred tax liability
213,897
166,136
126,883
90,500
71,084
Other liabilities
291,855
296,661
264,927
348,282
343,105
Total liabilities
3,663,668
3,654,966
3,583,304
2,825,924
2,759,590
Common stock
210
210
210
208
219
Treasury stock
(910,115
)
(909,745
)
(909,738
)
(902,024
)
(901,657
)
Additional paid-in capital
2,245,897
2,238,869
2,232,949
2,231,670
2,449,884
Retained earnings
2,684,636
2,561,076
2,450,423
2,504,853
2,389,789
Accumulated other comprehensive income
263,725
231,969
212,161
29,801
110,488
Total stockholders’ equity
4,284,353
4,122,379
3,986,005
3,864,508
4,048,723
Total liabilities and stockholders’ equity
$
7,948,021
$
7,777,345
$
7,569,309
$
6,690,432
$
6,808,313
Shares outstanding
191,606
191,556
191,492
190,387
201,164
Book value per share
$
22.36
$
21.52
$
20.82
$
20.30
$
20.13
Debt to capital ratio (1)
24.7
%
25.4
%
26.0
%
18.7
%
18.0
%
Risk to capital ratio-Radian Guaranty only
12.7:1
13.2:1
13.3:1
13.8:1
13.6:1
(1)
Calculated as senior notes divided by senior notes and stockholders' equity.
Radian Group Inc. and Subsidiaries
Net Premiums Earned
Exhibit D (page 1 of 2)
2020
2019
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Premiums earned:
Direct - Mortgage:
Premiums earned, excluding revenue from cancellations (1)
$
272,331
$
259,889
$
263,468
$
274,647
$
295,845
Single Premium Policy cancellations
53,526
65,667
50,023
24,133
26,479
Total direct - Mortgage (1)
325,857
325,556
313,491
298,780
322,324
Assumed - Mortgage: (2)
2,615
2,946
3,197
3,456
2,837
Ceded - Mortgage:
Premiums earned, excluding revenue from cancellations
(27,229
)
(25,120
)
(26,493
)
(28,609
)
(28,055
)
Single Premium Policy cancellations (3)
(15,197
)
(18,679
)
(14,424
)
(7,183
)
(7,843
)
Profit commission - other (4)
770
(1,347
)
(28,175
)
8,555
9,241
Total ceded premiums, net of profit commission - Mortgage (5)
(41,656
)
(45,146
)
(69,092
)
(27,237
)
(26,657
)
Net premiums earned - Mortgage (1)
286,816
283,356
247,596
274,999
298,504
Net premiums earned - Real Estate (6)
7,572
7,099
4,734
3,149
3,343
Net premiums earned - All Other (6)
7,752
(3,984
)
(3,035
)
(733
)
(361
)
Net premiums earned (1)
$
302,140
$
286,471
$
249,295
$
277,415
$
301,486
(1)
The fourth quarters of 2020 and 2019 include increases to premiums earned of $11.3 million and $17.4 million, respectively, related to changes in present value estimates for initial premiums on monthly policies that are deferred and not collected until cancellation. The impact of changes in this estimate in other periods is not material.(2)
Relates primarily to premiums earned from our participation in certain credit risk transfer programs.
(3)
Includes the impact of related profit commissions.
(4)
The amounts represent the profit commission on the Single Premium QSR Program, excluding the impact of Single Premium Policy cancellations.
(5)
See Exhibit L for additional information on ceded premiums for our various reinsurance programs.
(6)
See Exhibit E for additional information on changes that impacted our reported segment results for all periods.
Radian Group Inc. and Subsidiaries
Net Premiums Earned - Insurance
Exhibit D (page 2 of 2)
Year Ended December 31,
(In thousands)
2020
2019
Premiums earned:
Direct - Mortgage:
Premiums earned, excluding revenue from cancellations
$
1,070,335
$
1,154,045
(1
)
Single Premium Policy cancellations
193,349
79,483
Total direct - Mortgage
1,263,684
1,233,528
Assumed - Mortgage: (2)
12,214
10,382
Ceded - Mortgage:
Premiums earned, excluding revenue from cancellations
(107,451
)
(134,946
)
(1
)
Single Premium Policy cancellations (3)
(55,483
)
(23,766
)
Profit commission - other (4)
(20,197
)
49,016
(1
)
Total ceded premiums, net of profit commission - Mortgage (5)
(183,131
)
(109,696
)
Net premiums earned - Mortgage
1,092,767
1,134,214
Net premiums earned - Real Estate (6)
22,554
11,976
Net premiums earned - All Other (6)
—
(841
)
Net premiums earned
$
1,115,321
$
1,145,349
(1)
Includes a cumulative adjustment to unearned premiums related to an update to the amortization rates used to recognize revenue for Single Premium Policies.
(2)
Relates primarily to premiums earned from our participation in certain credit risk transfer programs.
(3)
Includes the impact of related profit commissions.
(4)
The amounts represent the profit commission on the Single Premium QSR Program, excluding the impact of Single Premium Policy cancellations.
(5)
See Exhibit L for additional information on ceded premiums for our various reinsurance programs.
(6)
See Exhibit E for additional information on changes that impacted our reported segment results for all periods.
Radian Group Inc. and Subsidiaries
Segment Information
Exhibit E (page 1 of 6)
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 (1)
2020
2019
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Net premiums written (2) (3)
$
261,244
$
259,278
$
229,458
$
260,974
$
287,952
(Increase) decrease in unearned premiums
25,572
24,078
18,138
14,025
10,552
Net premiums earned
286,816
283,356
247,596
274,999
298,504
Services revenue
3,717
3,914
3,918
3,216
2,936
Net investment income
34,235
32,054
34,708
36,198
37,818
Other income
735
689
721
671
719
Total
325,503
320,013
286,943
315,084
339,977
Provision for losses
56,312
87,753
304,021
35,246
34,411
Policy acquisition costs
7,395
10,166
6,015
7,413
6,783
Cost of services
3,245
2,908
2,133
1,757
1,713
Other operating expenses before allocated corporate operating expenses (4)
21,974
21,635
18,537
23,593
32,604
Interest expense (5) (7)
21,169
21,088
16,699
12,194
12,160
Total (6)
110,095
143,550
347,405
80,203
87,671
Adjusted pretax operating income (loss) before allocated corporate operating expenses
215,408
176,463
(60,462
)
234,881
252,306
Allocation of corporate operating expenses
31,102
29,127
25,359
29,214
27,394
Adjusted pretax operating income (loss)
$
184,306
$
147,336
$
(85,821
)
$
205,667
$
224,912
Real Estate (1) (7)
2020
2019
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Net premiums earned (8)
$
7,572
$
7,099
$
4,734
$
3,149
$
3,343
Services revenue (6) (8)
15,958
22,627
17,688
23,251
18,511
Net investment income
43
67
126
125
144
Total
23,573
29,793
22,548
26,525
21,998
Provision for losses
392
370
426
743
238
Cost of services
15,706
18,085
12,681
14,989
13,904
Other operating expenses before allocated corporate operating expenses (4)
15,238
13,136
10,527
10,579
10,803
Total
31,336
31,591
23,634
26,311
24,945
Adjusted pretax operating income before allocated corporate operating expenses (9)
(7,763
)
(1,798
)
(1,086
)
214
(2,947
)
Allocation of corporate operating expenses
3,369
3,248
2,823
3,367
2,675
Adjusted pretax operating income (loss)
$
(11,132
)
$
(5,046
)
$
(3,909
)
$
(3,153
)
$
(5,622
)
Radian Group Inc. and Subsidiaries
Segment Information
Exhibit E (page 2 of 6)
All Other (1) (7) (10)
2020
2019
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Net premiums earned (8)
$
7,752
$
(3,984
)
$
(3,035
)
$
(733
)
$
(361
)
Services revenue (6) (8)
(7,963
)
8,267
6,579
5,652
18,874
Net investment income
3,837
4,134
3,889
4,621
3,470
Other income
55
224
104
151
99
Total
3,681
8,641
7,537
9,691
22,082
Cost of services
2,835
4,127
3,177
5,500
11,871
Other operating expenses (4)
3,033
1,824
3,129
2,106
5,518
Total
5,868
5,951
6,306
7,606
17,389
Adjusted pretax operating income (loss)
$
(2,187
)
$
2,690
$
1,231
$
2,085
$
4,693
(1)
Certain organizational changes implemented in the first quarter of 2020 following the sale of Clayton caused the composition of our reportable segments to change, including all activity related to Clayton prior to the sale and certain other impacts now being reflected in All Other activities. These changes to our reportable segments have been reflected in our segment operating results for all periods presented.(2)
Net of ceded premiums written under the QSR Programs and the Excess-of-Loss Program. See Exhibit L for additional information.
(3)
The fourth quarters of 2020 and 2019 include increases to premiums earned of $11.3 million and $17.4 million, respectively, related to changes in present value estimates for initial premiums on monthly policies that are deferred and not collected until cancellation. The impact of changes in this estimate in other periods is not material.
(4)
Does not include impairment of long-lived assets and other non-operating items, which are not considered components of adjusted pretax operating income (loss).
(5)
Relates to interest on our borrowing and financing activities including our Senior Notes issued by our holding company and FHLB borrowings made by our mortgage insurance subsidiaries.
(6)
Inter-segment information:
2020
2019
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Inter-segment revenue included in:
Mortgage
$
—
$
—
$
—
$
83
$
160
Real Estate
86
98
91
87
87
All Other
186
767
19
22
43
Total inter-segment revenue
$
272
$
865
$
110
$
192
$
290
Inter-segment expense included in:
Mortgage
$
86
$
98
$
91
$
87
$
79
Real Estate
186
767
19
22
16
All Other
—
—
—
83
195
Total inter-segment expense
$
272
$
865
$
110
$
192
$
290
See notes continued on next page.
Radian Group Inc. and Subsidiaries
Segment Information
Exhibit E (page 3 of 6)
Notes continued from prior page.
(7)
The wind-down of our traditional appraisal business announced in the fourth quarter of 2020 caused the composition of our reportable segments to change, including all activity related to that business and certain other adjustments to services revenue now being reflected in All Other activities. In addition, there were certain other immaterial reclassifications to net investment income and interest expense. These changes to our reportable segments have been reflected in our segment operating results for all periods presented.
(8)
In the fourth quarter of 2020, we reclassified certain revenue previously reflected in the Real Estate segment results as services revenue to net premiums earned. As a result, for all periods presented, on the Real Estate segment, net premiums earned has been increased and services revenue has been decreased, with offsetting adjustments reflected in All Other activities.
(9)
Supplemental information for Real Estate adjusted EBITDA (see definition in Exhibit F):
2020
2019
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Adjusted pretax operating income (loss) before corporate allocations
$
(7,763
)
$
(1,798
)
$
(1,086
)
$
214
$
(2,947
)
Depreciation and amortization
744
679
771
663
552
Real Estate adjusted EBITDA
$
(7,019
)
$
(1,119
)
$
(315
)
$
877
$
(2,395
)
(10)
All Other activities include: (i) income (losses) from assets held by our holding company; (ii) related general corporate operating expenses not attributable or allocated to our reportable segments; (iii) for all periods prior to it's sale in the first quarter of 2020, revenue and expenses related to Clayton; (iv) revenue and expenses from our traditional appraisal business; and (v) other immaterial revenue and expense items.Selected Mortgage Key Ratios
2020
2019
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Loss ratio (1)
19.6
%
31.0
%
122.8
%
12.8
%
11.5
%
Expense ratio (1)
21.1
%
21.5
%
20.2
%
21.9
%
22.4
%
(1)
Calculated on a GAAP basis using net premiums earned.
Radian Group Inc. and Subsidiaries
Segment Information
Exhibit E (page 4 of 6)
Mortgage (1)
Year Ended December 31,
(In thousands)
2020
2019
Net premiums written (2)
$
1,010,954
$
1,075,450
Decrease in unearned premiums
81,813
58,764
(3
)
Net premiums earned
1,092,767
1,134,214
Services revenue
14,765
8,134
Net investment income
137,195
151,491
Other income
2,816
2,798
Total
1,247,543
1,296,637
Provision for losses
483,332
131,473
Policy acquisition costs
30,989
25,314
Cost of services
10,043
4,961
Other operating expenses before allocated corporate operating expenses (4)
85,739
121,647
Interest expense (5)
71,150
56,310
Total (6)
681,253
339,705
Adjusted pretax operating income before allocated corporate operating expenses
566,290
956,932
Allocation of corporate operating expenses
114,802
104,078
Adjusted pretax operating income
$
451,488
$
852,854
Real Estate (1) (7)
Year Ended December 31,
(In thousands)
2020
2019
Net premiums earned (8)
$
22,554
$
11,976
Services revenue (6) (8)
79,524
76,941
Net investment income
361
680
Total
102,439
89,597
Provision for losses
1,931
749
Cost of services
61,461
56,638
Other operating expenses before allocated corporate operating expenses (4)
49,480
40,032
Total
112,872
97,419
Adjusted pretax operating income (loss) before allocated corporate operating expenses (9)
(10,433
)
(7,822
)
Allocation of corporate operating expenses
12,807
10,165
Adjusted pretax operating income (loss)
$
(23,240
)
$
(17,987
)
Radian Group Inc. and Subsidiaries
Segment Information
Exhibit E (page 5 of 6)
All Other (1) (7) (10)
Year Ended December 31,
(In thousands)
2020
2019
Net premiums earned (8)
$
—
$
(841
)
Services revenue (6) (8)
12,535
70,961
Net investment income
16,481
19,625
Other income
534
697
Total
29,550
90,442
Cost of services
15,639
47,625
Other operating expenses (4)
10,092
23,049
Total
25,731
70,674
Adjusted pretax operating income
$
3,819
$
19,768
(1)
Certain organizational changes implemented in the first quarter of 2020 following the sale of Clayton caused the composition of our reportable segments to change, including all activity related to Clayton prior to the sale and certain other impacts now being reflected in All Other activities. These changes to our reportable segments have been reflected in our segment operating results for all periods presented.(2)
Net of ceded premiums written under the QSR Programs and the Excess-of-Loss Program. See Exhibit L for additional information.
(3)
Includes a cumulative adjustment to unearned premiums related to an update to the amortization rates used to recognize revenue for Single Premium Policies.
(4)
Does not include impairment of long-lived assets and other non-operating items, which are not considered components of adjusted pretax operating income (loss).
(5)
Relates to interest on our borrowing and financing activities including our Senior Notes issued by our holding company and FHLB borrowings made by our mortgage insurance subsidiaries.
(6)
Inter-segment information:
Year Ended December 31,
(In thousands)
2020
2019
Inter-segment revenue included in:
Mortgage
$
83
$
502
Real Estate
362
87
All Other
994
851
Total inter-segment revenue
$
1,439
$
1,440
Inter-segment expense included in:
Mortgage
$
362
$
539
Real Estate
994
16
All Other
83
885
Total inter-segment expense
$
1,439
$
1,440
See notes continued on next page.
Radian Group Inc. and Subsidiaries Segment Information Exhibit E (page 6 of 6)Notes continued from prior page.
(7)
The wind-down of our traditional appraisal business announced in the fourth quarter of 2020 caused the composition of our reportable segments to change, including all activity related to that business and certain other adjustments to services revenue now being reflected in All Other activities. These changes to our reportable segments have been reflected in our segment operating results for all periods presented.
(8)
In the fourth quarter of 2020, we reclassified certain revenue previously reflected in the Real Estate segment results as services revenue to net premiums earned. As a result, for all periods presented, on the Real Estate segment, net premiums earned has been increased and services revenue has been decreased, with offsetting adjustments reflected in All Other activities.
(9)
Supplemental information for Real Estate adjusted EBITDA (see definition in Exhibit F):
Year Ended December 31,
(In thousands)
2020
2019
Adjusted pretax operating income (loss) before corporate allocations
$
(10,433
)
$
(7,822
)
Depreciation and amortization
2,857
2,321
Real Estate adjusted EBITDA
$
(7,576
)
$
(5,501
)
(10)
All Other activities include: (i) income (losses) from assets held by our holding company; (ii) related general corporate operating expenses not attributable or allocated to our reportable segments; (iii) for all periods prior to it's sale in the first quarter of 2020, revenue and expenses related to Clayton; (iv) revenue and expenses from our traditional appraisal business; and (v) other immaterial revenue and expense items.Selected Mortgage Key Ratios
Year Ended December 31,
2020
2019
Loss ratio (1)
44.2
%
11.6
%
Expense ratio (1)
21.2
%
22.1
%
(1)
Calculated on a GAAP basis using net premiums earned.
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 (loss),” “adjusted diluted net operating income (loss) per share” and “adjusted net operating return on equity,” which are 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 (loss),” “adjusted diluted net operating income (loss) per share” and “adjusted net operating return on equity” 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 (loss) is defined as GAAP consolidated pretax income (loss) excluding the effects of: (i) net gains (losses) on investments and other financial instruments; (ii) loss on extinguishment of debt; (iii) amortization and impairment of goodwill and other acquired intangible assets; and (iv) impairment of other long-lived assets and other non-operating items, such as gains (losses) from the sale of lines of business and acquisition-related income and expenses. Adjusted diluted net operating income (loss) per share is calculated by dividing (i) adjusted pretax operating income (loss) attributable to common stockholders, 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. Adjusted net operating return on equity is calculated by dividing annualized adjusted pretax operating income (loss), net of taxes computed using the Company’s statutory tax rate, by average stockholders’ equity, based on the average of the beginning and ending balances for each period presented.
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: (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 gains and losses arise primarily from changes in the market value of our investments that are classified as trading or equity 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 and changes in fair value of other financial instruments. We do not view them to be indicative of our fundamental operating activities.
(2)
Loss on extinguishment of debt. Gains or losses on early extinguishment of debt and losses incurred to purchase our 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.
(3)
Amortization and impairment of goodwill and other acquired intangible assets. Amortization of acquired intangible assets represents the periodic expense required to amortize the cost of acquired intangible assets over their estimated useful lives. Acquired intangible assets are also periodically reviewed for potential impairment, and impairment adjustments are made whenever appropriate. We do not view these charges as part of the operating performance of our primary activities.
(4)
Impairment of other long-lived assets and other non-operating items. Includes activities that we do not view to be indicative of our fundamental operating activities, such as: (i) impairment of internal-use software and other long-lived assets; (ii) gains (losses) from the sale of lines of business; and (iii) acquisition-related expenses.
Radian Group Inc. and Subsidiaries Definition of Consolidated Non-GAAP Financial Measures Exhibit F (page 2 of 2)
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 Real Estate segment, representing a measure of earnings before interest, income tax provision (benefit), depreciation and amortization (“EBITDA”). We calculate Real Estate adjusted EBITDA by using adjusted pretax operating income (loss) as described above, further adjusted to remove the impact of depreciation and corporate allocations for interest and operating expenses. In addition, Real Estate adjusted EBITDA margin is calculated by dividing Real Estate adjusted EBITDA by GAAP total revenue for the Real Estate segment. Real Estate adjusted EBITDA and Real Estate adjusted EBITDA margin are used to facilitate comparisons with other services companies, since they are widely accepted measures of performance in the services industry and are used internally as supplemental measures to evaluate the performance of our Real Estate segment.
See Exhibit G for the reconciliation of the most comparable GAAP measures, consolidated pretax income (loss), diluted net income (loss) per share and return on equity to our non-GAAP financial measures for the consolidated company, adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share and adjusted net operating return on equity, respectively. Exhibit G also contains the reconciliation of the most comparable GAAP measure, net income (loss), to Real Estate adjusted EBITDA.
Total adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share, adjusted net operating return on equity, Real Estate adjusted EBITDA and Real Estate adjusted EBITDA margin should not be considered in isolation or viewed as substitutes for GAAP pretax income (loss), diluted net income (loss) per share, return on equity or net income (loss). Our definitions of adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share, adjusted net operating return on equity, Real Estate adjusted EBITDA or Real Estate adjusted EBITDA margin 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 6)
Reconciliation of Consolidated Pretax Income to Adjusted Pretax Operating Income
2020
2019
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Consolidated pretax income (loss)
$
179,167
$
161,205
$
(42,224
)
$
181,293
$
205,639
Less reconciling income (expense) items:
Net gains (losses) on investments and other financial instruments
17,376
17,652
47,276
(22,027
)
4,257
Impairment of goodwill
—
—
—
—
(4,828
)
Amortization and impairment of other acquired intangible assets
(2,225
)
(961
)
(979
)
(979
)
(15,823
)
Impairment of other long-lived assets and other non-operating items (1)
(6,971
)
(466
)
(22
)
(300
)
(1,950
)
Total adjusted pretax operating income (loss) (2)
$
170,987
$
144,980
$
(88,499
)
$
204,599
$
223,983
(1)
The amounts for all the periods presented are included in other operating expenses on the Condensed Consolidated Statement of Operations in Exhibit A and primarily relate to impairments of other long-lived assets.
(2)
Total adjusted pretax operating income (loss) consists of adjusted pretax operating income (loss) for each reportable segment and All Other activities as follows:
2020
2019
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Adjusted pretax operating income (loss):
Mortgage segment
$
184,306
$
147,336
$
(85,821
)
$
205,667
$
224,912
Real Estate segment
(11,132
)
(5,046
)
(3,909
)
(3,153
)
(5,622
)
All Other activities
(2,187
)
2,690
1,231
2,085
4,693
Total adjusted pretax operating income (loss)
$
170,987
$
144,980
$
(88,499
)
$
204,599
$
223,983
Radian Group Inc. and Subsidiaries
Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit G (page 2 of 6)
Reconciliation of Diluted Net Income (Loss) Per Share to Adjusted Diluted Net Operating Income (Loss) Per Share
2020
2019
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Diluted net income (loss) per share
$
0.76
$
0.70
$
(0.15
)
$
0.70
$
0.79
Less per-share impact of reconciling income (expense) items:
Net gains (losses) on investments and other financial instruments
0.09
0.09
0.24
(0.11
)
0.02
Impairment of goodwill
—
—
—
—
(0.02
)
Amortization and impairment of other acquired intangible assets
(0.01
)
—
(0.01
)
—
(0.08
)
Impairment of other long-lived assets and other non-operating items
(0.04
)
—
—
—
(0.01
)
Income tax (provision) benefit on reconciling income (expense) items (1)
(0.01
)
(0.02
)
(0.05
)
0.02
0.02
Difference between statutory and effective tax rate
0.04
0.04
0.03
(0.01
)
—
Per-share impact of reconciling income (expense) items
0.07
0.11
0.21
(0.10
)
(0.07
)
Adjusted diluted net operating income (loss) per share (1)
$
0.69
$
0.59
$
(0.36
)
$
0.80
$
0.86
(1)
Calculated using the company’s federal statutory tax rate of 21%. Any permanent tax adjustments and state income taxes on these items have been deemed immaterial and are not included.
Reconciliation of Return on Equity to Adjusted Net Operating Return on Equity (1)
2020
2019
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Return on equity (1)
14.1
%
13.3
%
(3.1
)%
14.2
%
16.2
%
Less impact of reconciling income (expense) items: (2)
Net gains (losses) on investments and other financial instruments
1.7
1.7
4.8
(2.2
)
0.4
Impairment of goodwill
—
—
—
—
(0.5
)
Amortization and impairment of other acquired intangible assets
(0.2
)
(0.1
)
(0.1
)
(0.1
)
(1.6
)
Impairment of other long-lived assets and other non-operating items
(0.7
)
—
—
—
(0.2
)
Income tax (provision) benefit on reconciling income (expense) items (3)
(0.2
)
(0.3
)
(1.0
)
0.5
0.4
Difference between statutory and effective tax rate
0.6
0.7
0.3
(0.3
)
(0.1
)
Impact of reconciling income (expense) items
1.2
2.0
4.0
(2.1
)
(1.6
)
Adjusted net operating return on equity
12.9
%
11.3
%
(7.1
)%
16.3
%
17.8
%
(1)
Calculated by dividing annualized net income (loss) by average stockholders’ equity, based on the average of the beginning and ending balances for each period presented.
(2)
Annualized, as a percentage of average stockholders’ equity.
(3)
Calculated using the company’s federal statutory tax rate of 21%. 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 3 of 6)
Reconciliation of Net Income (Loss) to Real Estate Adjusted EBITDA
2020
2019
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Net income (loss)
$
148,013
$
135,103
$
(29,951
)
$
140,461
$
161,184
Less reconciling income (expense) items:
Net gains (losses) on investments and other financial instruments
17,376
17,652
47,276
(22,027
)
4,257
Impairment of goodwill
—
—
—
—
(4,828
)
Amortization and impairment of other acquired intangible assets
(2,225
)
(961
)
(979
)
(979
)
(15,823
)
Impairment of other long-lived assets and other non-operating items
(6,971
)
(466
)
(22
)
(300
)
(1,950
)
Income tax (provision) benefit
(31,154
)
(26,102
)
12,273
(40,832
)
(44,455
)
Mortgage adjusted pretax operating income (loss)
184,306
147,336
(85,821
)
205,667
224,912
All Other adjusted pretax operating income
(2,187
)
2,690
1,231
2,085
4,693
Real Estate adjusted pretax operating income (loss)
(11,132
)
(5,046
)
(3,909
)
(3,153
)
(5,622
)
Less reconciling income (expense) items:
Allocation of corporate operating expenses to Real Estate
(3,369
)
(3,248
)
(2,823
)
(3,367
)
(2,675
)
Real Estate depreciation and amortization
(744
)
(679
)
(771
)
(663
)
(552
)
Real Estate adjusted EBITDA
$
(7,019
)
$
(1,119
)
$
(315
)
$
877
$
(2,395
)
Radian Group Inc. and Subsidiaries
Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit G (page 4 of 6)
Reconciliation of Consolidated Pretax Income to Adjusted Pretax Operating Income
Year Ended December 31,
(In thousands)
2020
2019
Consolidated pretax income
$
479,441
$
848,993
Less reconciling income (expense) items:
Net gains (losses) on investments and other financial instruments
60,277
51,719
Loss on extinguishment of debt
—
(22,738
)
Impairment of goodwill
—
(4,828
)
Amortization and impairment of other acquired intangible assets
(5,144
)
(22,288
)
Impairment of other long-lived assets and other non-operating items (1)
(7,759
)
(7,507
)
Total adjusted pretax operating income (2)
$
432,067
$
854,635
(1)
The amounts for both periods are included in other operating expenses on the Condensed Consolidated Statement of Operations in Exhibit A and primarily relate to impairments of other long-lived assets.
(2)
Total adjusted pretax operating income consists of adjusted pretax operating income (loss) for each reportable segment and All Other activities as follows:
Year Ended December 31,
(In thousands)
2020
2019
Adjusted pretax operating income (loss):
Mortgage segment
$
451,488
$
852,854
Real Estate segment
(23,240
)
(17,987
)
All Other activities
3,819
19,768
Total adjusted pretax operating income
$
432,067
$
854,635
Reconciliation of Diluted Net Income Per Share to Adjusted Diluted Net Operating Income Per Share
Year Ended December 31,
2020
2019
Diluted net income per share
$
2.00
$
3.20
Less per-share impact of reconciling income (expense) items:
Net gains (losses) on investments and other financial instruments
0.31
0.25
Loss on extinguishment of debt
—
(0.11
)
Impairment of goodwill
—
(0.02
)
Amortization and impairment of other acquired intangible assets
(0.03
)
(0.11
)
Impairment of other long-lived assets and other non-operating items
(0.04
)
(0.04
)
Income tax (provision) benefit on other income (expense) items (1)
(0.05
)
0.01
Difference between statutory and effective tax rate
0.07
0.01
Per-share impact of other income (expense) items
0.26
(0.01
)
Adjusted diluted net operating income per share (1)
$
1.74
$
3.21
(1)
Calculated using the company’s federal statutory tax rate of 21%. 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 5 of 6)
Reconciliation of Return on Equity to Adjusted Net Operating Return on Equity (1)
Year Ended December 31,
2020
2019
Return on equity (1)
9.4
%
17.8
%
Less impact of reconciling income (expense) items: (2)
Net gains (losses) on investments and other financial instruments
1.4
1.4
Loss on extinguishment of debt
—
(0.6
)
Impairment of goodwill
—
(0.1
)
Amortization and impairment of other acquired intangible assets
(0.1
)
(0.6
)
Impairment of other long-lived assets and other non-operating items
(0.2
)
(0.2
)
Income tax (provision) benefit on reconciling income (expense) items (3)
(0.2
)
—
Difference between statutory and effective tax rate (3)
0.3
—
Impact of reconciling income (expense) items
1.2
(0.1
)
Adjusted net operating return on equity
8.2
%
17.9
%
(1)
Calculated by dividing net income by average stockholders’ equity.
(2)
As a percentage of average stockholders’ equity.
(3)
Calculated using the company’s federal statutory tax rate of 21%. 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 6 of 6)
Reconciliation of Net Income to Real Estate Adjusted EBITDA
Year Ended December 31,
(In thousands)
2020
2019
Net income
$
393,626
$
672,309
Less reconciling income (expense) items:
Net gains (losses) on investments and other financial instruments
60,277
51,719
Loss on extinguishment of debt
—
(22,738
)
Impairment of goodwill
—
(4,828
)
Amortization and impairment of other acquired intangible assets
(5,144
)
(22,288
)
Impairment of other long-lived assets and other non-operating items
(7,759
)
(7,507
)
Income tax (provision) benefit
(85,815
)
(176,684
)
Mortgage adjusted pretax operating income
451,488
852,854
All Other adjusted pretax operating income
3,819
19,768
Real Estate adjusted pretax operating income (loss)
(23,240
)
(17,987
)
Less reconciling income (expense) items:
Allocation of corporate operating expenses to Real Estate
(12,807
)
(10,165
)
Real Estate depreciation and amortization
(2,857
)
(2,321
)
Real Estate adjusted EBITDA
$
(7,576
)
$
(5,501
)
On a consolidated basis, “adjusted pretax operating income (loss),” “adjusted diluted net operating income (loss) per share” and “adjusted net operating return on equity” are measures not determined in accordance with GAAP. “Real Estate adjusted EBITDA” and “Real Estate adjusted EBITDA margin” are also non-GAAP measures. These measures should not be considered in isolation or viewed as substitutes for GAAP pretax income (loss), diluted net income (loss) per share, return on equity or net income (loss). Our definitions of adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share, adjusted net operating return on equity, Real Estate adjusted EBITDA or Real Estate adjusted EBITDA margin 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 Supplemental Information - New Insurance Written
Exhibit H
2020
2019
($ in millions)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
New insurance written ("NIW")
$
29,781
$
33,320
$
25,459
$
16,706
$
19,953
Percentage of NIW by FICO score (1)
>=740
64.7
%
66.2
%
67.3
%
65.7
%
66.3
%
680-739
31.5
30.7
30.1
31.1
30.5
620-679
3.8
3.1
2.6
3.2
3.2
Total NIW
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Percentage of NIW
Borrower-paid
99.2
%
98.5
%
97.8
%
96.7
%
97.4
%
Percentage by premium type
Direct monthly and other recurring premiums
91.4
%
90.0
%
84.7
%
81.1
%
82.1
%
Borrower-paid (2) (3)
8.3
9.0
13.6
16.5
16.0
Lender-paid (2)
0.3
1.0
1.7
2.4
1.9
Direct single premiums (2)
8.6
10.0
15.3
18.9
17.9
Total NIW
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
NIW for purchases
64.6
%
70.5
%
56.4
%
66.2
%
67.5
%
NIW for refinances
35.4
%
29.5
%
43.6
%
33.8
%
32.5
%
Percentage by LTV
95.01% and above
8.9
%
9.7
%
8.3
%
9.9
%
11.5
%
90.01% to 95.00%
34.7
39.6
36.4
37.6
35.8
85.01% to 90.00%
29.8
28.3
29.8
30.3
30.0
85.00% and below
26.6
22.4
25.5
22.2
22.7
Total NIW
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
(1)
For loans with multiple borrowers, the percentage of NIW by FICO score represents the lowest of the borrowers’ FICO scores.
(2)
Percentages exclude the impact of reinsurance.
(3)
Borrower-paid Single Premium Policies have lower Minimum Required Assets under PMIERs as compared to lender-paid Single Premium Policies.
Radian Group Inc. and Subsidiaries
Mortgage Supplemental Information - Primary Insurance in Force and Risk in Force
Exhibit I (page 1 of 2)
December 31,
September 30,
June 30,
March 31,
December 31,
($ in millions)
2020
2020
2020
2020
2019
Primary insurance in force (1)
Prime
$
242,044
$
241,166
$
236,835
$
236,958
$
235,742
Alt-A and A minus and below
4,100
4,301
4,471
4,628
4,816
Primary
$
246,144
$
245,467
$
241,306
$
241,586
$
240,558
Primary risk in force (1) (2)
Prime
$
59,689
$
59,972
$
59,253
$
59,827
$
59,780
Alt-A and A minus and below
967
1,017
1,058
1,096
1,141
Primary
$
60,656
$
60,989
$
60,311
$
60,923
$
60,921
Percentage of primary risk in force
Direct monthly and other recurring premiums
79.1
%
76.8
%
73.8
%
72.6
%
72.4
%
Direct single premiums
20.9
%
23.2
%
26.2
%
27.4
%
27.6
%
Percentage of primary risk in force by FICO score (3)
>=740
57.5
%
57.6
%
57.4
%
57.2
%
56.9
%
680-739
34.6
34.3
34.3
34.2
34.2
620-679
7.3
7.5
7.7
8.0
8.2
<=619
0.6
0.6
0.6
0.6
0.7
Total Primary
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Percentage of primary risk in force by LTV
95.01% and above
14.4
%
14.3
%
14.2
%
14.3
%
14.2
%
90.01% to 95.00%
49.3
50.1
50.4
51.0
51.3
85.01% to 90.00%
28.0
27.9
28.1
27.9
27.9
85.00% and below
8.3
7.7
7.3
6.8
6.6
Total
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Percentage of primary risk in force by policy year
2008 and prior
6.2
%
6.6
%
7.2
%
7.5
%
7.8
%
2009 - 2013
4.4
5.2
6.3
6.9
7.5
2014
2.6
3.0
3.6
4.0
4.3
2015
4.3
5.1
6.1
6.9
7.4
2016
7.6
8.9
10.6
11.7
12.5
2017
9.1
10.7
13.0
14.8
16.0
2018
9.8
11.7
14.0
16.4
17.9
2019
17.8
20.6
23.3
25.4
26.6
2020
38.2
28.2
15.9
6.4
—
Total
100.0
%
100.0
%
100.0
%
100.0
%
100.0
%
Primary risk in force on defaulted loans
$
3,250
$
3,747
$
4,263
$
1,001
$
1,061
Table continued on next page.
Radian Group Inc. and Subsidiaries
Mortgage Supplemental Information - Primary Insurance in Force and Risk in Force
Exhibit I (page 2 of 2)
Table continued from prior page.
December 31,
September 30,
June 30,
March 31,
December 31,
2020
2020
2020
2020
2019
Persistency Rate (12 months ended) (4)
61.2
%
65.6
%
70.2
%
75.4
%
78.2
%
Persistency Rate (quarterly, annualized) (4) (5)
60.4
%
60.0
%
63.8
%
76.5
%
75.0
%
(1)
Excludes the impact of premiums ceded under our reinsurance agreements.
(2)
Does not include pool risk in force or other risk in force, which combined represent less than 1.0% of our total risk in force for all periods presented.
(3)
For loans with multiple borrowers, the percentage of primary risk in force by FICO score represents the lowest of the borrowers’ FICO scores.
(4)
For the quarters ended December 31, 2020 and September 30, 2020, the Persistency Rate was reduced by an increase in cancellations of Single Premium Policies due to increased cancellations identified by our ongoing servicer monitoring process for Single Premium Policies.
(5)
The Persistency Rate on a quarterly, annualized basis is calculated based on loan-level detail for the quarter ending as of the date shown. It may be impacted by seasonality or other factors, including the level of refinance activity during the applicable periods, and may not be indicative of full-year trends.
Radian Group Inc. and Subsidiaries
Mortgage Supplemental Information - Claims and Reserves
Exhibit J
2020
2019
($ in thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Net claims paid: (1)
Total primary claims paid
$
8,353
$
11,331
$
22,144
$
24,358
$
24,267
Total pool and other
70
(230
)
639
(911
)
559
Subtotal
8,423
11,101
22,783
23,447
24,826
Impact of commutations and settlements (2)
32,170
(267
)
—
(56
)
3,691
Total net claims paid
$
40,593
$
10,834
$
22,783
$
23,391
$
28,517
Total average net primary claims paid (1) (3)
$
46.9
$
46.4
$
47.9
$
50.3
$
50.9
Average direct primary claims paid (3) (4)
$
48.5
$
47.8
$
49.0
$
51.4
$
52.1
(1)
Net of reinsurance recoveries.
(2)
Includes payments to commute mortgage insurance coverage on certain performing and non-performing loans. For the fourth quarter of 2020, primarily includes payments made to settle certain previously disclosed legal proceedings.
(3)
Calculated without giving effect to the impact of commutations and settlements.
(4)
Before reinsurance recoveries.
December 31,
September 30,
June 30,
March 31,
December 31,
($ in thousands, except per default amounts)
2020
2020
2020
2020
2019
Reserve for losses by category (1)
Mortgage reserves
Prime
$
711,245
$
655,754
$
573,463
$
264,694
$
248,727
Alt-A and A minus and below
88,269
88,879
86,646
88,481
91,093
IBNR and other
9,966
43,153
43,342
40,583
40,920
LAE
20,172
18,745
16,807
9,216
8,918
Total primary reserves
829,652
806,531
720,258
402,974
389,658
Total pool reserves
14,163
14,779
14,398
11,297
11,322
Total 1st lien reserves
843,815
821,310
734,656
414,271
400,980
Other
292
398
335
407
293
Total Mortgage reserves
844,107
821,708
734,991
414,678
401,273
Real Estate reserves
4,306
4,084
3,894
3,524
3,492
Total reserves
$
848,413
$
825,792
$
738,885
$
418,202
$
404,765
1st lien reserve per default
Primary reserve per primary default excluding IBNR and other
$
14,759
$
12,168
$
9,706
$
18,320
$
16,399
(1)
Includes ceded losses on reinsurance transactions, which are expected to be recovered and are included in the reinsurance recoverables reported in other assets in our condensed consolidated balance sheets.
Radian Group Inc. and Subsidiaries
Mortgage Supplemental Information - Default Statistics
Exhibit K
December 31,
September 30,
June 30,
March 31,
December 31,
2020
2020
2020
2020
2019
Default Statistics
Primary Insurance:
Prime
Number of insured loans
1,031,736
1,043,450
1,040,964
1,049,974
1,049,954
Number of loans in default
51,032
58,057
64,648
15,497
16,532
Percentage of loans in default
4.95
%
5.56
%
6.21
%
1.48
%
1.57
%
Alt-A and A minus and below
Number of insured loans
26,208
27,310
28,357
29,375
30,439
Number of loans in default
4,505
4,680
5,094
4,284
4,734
Percentage of loans in default
17.19
%
17.14
%
17.96
%
14.58
%
15.55
%
Total Primary
Number of insured loans
1,057,944
1,070,760
1,069,321
1,079,349
1,080,393
Number of loans in default
55,537
62,737
69,742
19,781
21,266
Percentage of loans in default
5.25
%
5.86
%
6.52
%
1.83
%
1.97
%
Radian Group Inc. and Subsidiaries
Mortgage Supplemental Information - Reinsurance Programs
Exhibit L
2020
2019
($ in thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Quota Share Reinsurance (“QSR”) and Single Premium QSR Programs
Ceded premiums written (1)
$
(1,117
)
$
2,119
$
35,821
$
6,687
$
9,217
% of premiums written
(0.4
)%
0.8
%
13.0
%
2.4
%
3.0
%
Ceded premiums earned
$
29,510
$
36,742
$
60,652
$
18,712
$
19,428
% of premiums earned
8.6
%
11.2
%
19.2
%
6.2
%
6.1
%
Ceding commissions written
$
(3,847
)
$
(4,984
)
$
(5,304
)
$
8,413
$
6,836
Ceding commissions earned (2)
$
13,197
$
17,038
$
13,453
$
9,966
$
12,055
Profit commission
$
18,406
$
20,425
$
(10,649
)
$
16,405
$
17,792
Ceded losses
$
7,106
$
10,189
$
39,635
$
1,962
$
1,533
Excess-of-Loss Program
Ceded premiums written
$
15,240
$
7,499
$
7,525
$
12,678
$
6,834
% of premiums written
5.2
%
2.8
%
2.7
%
4.5
%
2.2
%
Ceded premiums earned
$
12,037
$
8,290
$
8,321
$
8,405
$
7,104
% of premiums earned
3.7
%
2.5
%
2.6
%
2.8
%
2.2
%
Ceded RIF (3)
QSR Program
$
381,787
$
454,585
$
532,743
$
596,166
$
644,512
Single Premium QSR Program
6,646,812
7,358,932
8,173,756
8,580,047
8,582,067
Excess-of-Loss Program
1,560,600
1,170,200
1,170,200
1,230,000
850,800
Total Ceded RIF
$
8,589,199
$
8,983,717
$
9,876,699
$
10,406,213
$
10,077,379
PMIERs impact - reduction in Minimum Required Assets (4)
QSR Program
$
22,712
$
26,213
$
30,837
$
31,638
$
35,382
Single Premium QSR Program
423,712
469,625
517,028
501,668
511,695
Excess-of-Loss Program
912,734
783,842
970,294
1,066,464
738,386
Total PMIERs impact
$
1,359,158
$
1,279,680
$
1,518,159
$
1,599,770
$
1,285,463
(1)
Net of profit commission.
(2)
Includes amounts reported in policy acquisition costs and other operating expenses. Operating expenses include the following ceding commissions, net of deferred policy acquisition costs, for the periods indicated:
2020
2019
($ in thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Ceding commissions
$
(10,436
)
$
(12,337
)
$
(10,406
)
$
(7,967
)
$
(7,973
)
(3)
Included in primary RIF.
(4)
Excludes the impact of intercompany reinsurance.
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 Securities Exchange Act of 1934 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, including management’s current views regarding the likely impacts of the COVID-19 pandemic. 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, particularly those associated with the COVID-19 pandemic, which has had wide-ranging and continually evolving effects. 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 “Item 1A. Risk Factors” in our Quarterly Report on Form 10-Q for the quarter ended September 30, 2020 and “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2019, and to 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: https://www.businesswire.com/news/home/20210224006193/en/
For Investors: John Damian - Phone: 215.231.1383 email: john.damian@radian.com For Media: Rashi Iyer - Phone 215.231.1167 email: rashi.iyer@radian.com
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