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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 | |
---|---|---|---|---|---|---|---|---|
0.00 | 0.00% | 31.31 | 0 | 12:42:53 |
– Reports net income of $70 million or $0.29 per diluted share –
– Adjusted diluted net operating income of $0.31 per share –
Radian Group Inc. (NYSE: RDN) today reported net income for the quarter ended September 30, 2015, of $70.1 million, or $0.29 per diluted share. This compares to net income for the quarter ended September 30, 2014, of $153.6 million, or $0.67 per diluted share.
Adjusted pretax operating income for the quarter ended September 30, 2015, was $115.6 million, compared to adjusted pretax operating income for the quarter ended September 30, 2014, of $125.8 million. Adjusted diluted net operating income per share for the quarter ended September 30, 2015, was $0.31. See “Non-GAAP Financial Measures” below.
Key Financial Highlights (dollars in millions, except per share data)
Quarter EndedSeptember 30,2015
Quarter EndedSeptember 30,2014
PercentChange
Net income from continuing operations $70.1 $132.0 (47%) Diluted net income per share from continuing operations $0.29 $0.58 (50%) Adjusted pretax operating income $115.6 $125.8 (8%) Adjusted diluted net operating income per share * $0.31 $0.37 (16%) Revenues $297.3 $272.1 9% Book value per share $11.77 $9.08 30%* Adjusted diluted net operating income per share is calculated using the company’s statutory tax rate.
“We were successful in growing our mortgage insurance in force with high-quality business and in further expanding the scope of services we offer through our fee-based businesses,” said Radian’s Chief Executive Officer S.A. Ibrahim. “We are excited about the growth and opportunities ahead for our mortgage insurance and mortgage and real estate services segments, as we continue to enhance and seek new opportunities for our existing products and services.”
THIRD QUARTER HIGHLIGHTS AND RECENT EVENTS
Mortgage Insurance
Mortgage and Real Estate Services
Expenses
Other operating expenses were $65.1 million in the third quarter, compared to $67.7 million in the second quarter of 2015, and $51.2 million in the third quarter of last year.
CAPITAL AND LIQUIDITY UPDATE
Radian Group maintains approximately $710 million of currently available liquidity.
CONFERENCE CALL
Radian will discuss third quarter financial results in a conference call today, Tuesday, October 27, 2015, at 10:00 a.m. Eastern time. The conference call will be broadcast live over the Internet at http://www.radian.biz/page?name=Webcasts or at www.radian.biz. The call may also be accessed by dialing 800.230.1096 inside the U.S., or 612.332.0228 for international callers, using passcode 371396 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, using passcode 371396 or by referencing Radian.
In addition to the information provided in the company’s earnings news release, other statistical and financial information, which is expected to be referred to during the conference call, will be available on Radian's website under Investors >Quarterly Results, or by clicking on http://www.radian.biz/page?name=QuarterlyResults.
NON-GAAP FINANCIAL MEASURES
Radian believes that adjusted pretax operating income and adjusted diluted net operating income per share (non-GAAP measures) facilitate evaluation of the company’s fundamental financial performance and provide relevant and meaningful information to investors about the ongoing operating results of the company. On a consolidated basis, these measures are not recognized in accordance with accounting principles generally accepted in the United States of America (GAAP) and should not be viewed as alternatives to GAAP measures of performance. The measures described below have been established in order to increase transparency for the purpose of evaluating the company’s core operating trends and enabling more meaningful comparisons with Radian’s competitors.
Adjusted pretax operating income is defined as earnings excluding the impact of certain items that are not viewed as part of the operating performance of the company’s primary activities, or not expected to result in an economic impact equal to the amount reflected in pretax income (loss) from continuing operations. Adjusted diluted net operating income per share represents a diluted net income per share calculation using as its basis adjusted pretax operating income, net of taxes at the company’s statutory tax rate for the period.
In addition to the above non-GAAP measures for the consolidated company, we also have presented as supplemental information a non-GAAP measure for our Services segment, representing earnings before interest, income taxes, depreciation and amortization (EBITDA). We calculate Services EBITDA by using adjusted pretax operating income as described above, further adjusted to remove the impact of depreciation and corporate allocations for interest and operating expenses. We have presented Services EBITDA to facilitate comparisons with other services companies, since it is a widely accepted measure of performance in the services industry.
See press release Exhibit F or Radian’s website for a description of these items, as well as Exhibit G for reconciliations to the most comparable consolidated GAAP measures.
ABOUT RADIAN
Radian Group Inc. (NYSE: RDN), headquartered in Philadelphia, provides private mortgage insurance, risk management products and real estate services to financial institutions. Radian offers products and services through two business segments:
Additional information may be found at www.radian.biz.
FINANCIAL RESULTS AND SUPPLEMENTAL INFORMATION CONTENTS (Unaudited)
For trend information on all schedules, refer to Radian’s quarterly financial statistics at http://www.radian.biz/page?name=FinancialReportsCorporate.
Exhibit A: Condensed Consolidated Statements of Operations Trend Schedule Exhibit B: Net Income Per Share Trend Schedule Exhibit C: Condensed Consolidated Balance Sheets Exhibit D: Discontinued Operations Exhibit E: Segment Information Exhibit F: Definition of Consolidated Non-GAAP Financial Measure Exhibit G: Consolidated Non-GAAP Financial Measure Reconciliations Exhibit H: Mortgage Insurance Supplemental Information New Insurance Written Exhibit I: Mortgage Insurance Supplemental Information Primary Insurance in Force and Risk in Force by Product, Statutory Capital Ratios Exhibit J: Mortgage Insurance Supplemental Information Percentage of Primary Risk in Force by FICO, LTV and Policy Year Exhibit K: Mortgage Insurance Supplemental Information Claims and Reserves Exhibit L: Mortgage Insurance Supplemental Information Default Statistics Exhibit M: Mortgage Insurance Supplemental Information Captives, QSR and PersistencyRadian Group Inc. and Subsidiaries Condensed Consolidated Statements of Operations Trend Schedule Exhibit A 2015 2014
(In thousands, except per share amounts)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3 Revenues: Net premiums earned - insurance $ 227,433 $ 237,437 $ 224,595 $ 224,293 $ 217,827 Services revenue 42,189 43,503 30,630 34,450 42,243 Net investment income 22,091 19,285 17,328 16,531 17,143 Net gains (losses) on investments and other financial instruments 3,868 28,448 16,779 17,983 (6,294 ) Other income 1,711 1,743 1,331 1,793 1,162 Total revenues 297,292 330,416 290,663 295,050 272,081 Expenses: Provision for losses 64,192 32,560 45,028 82,867 48,942 Policy acquisition costs 2,880 6,963 7,750 6,443 4,240 Direct cost of services 24,949 23,520 19,253 19,709 23,896 Other operating expenses 65,082 67,731 53,774 85,800 51,225 Interest expense 21,220 24,501 24,385 24,200 23,989 Loss on induced conversion and debt extinguishment 11 91,876 — — — Amortization and impairment of intangible assets 3,273 3,281 3,023 5,354 3,294 Total expenses 181,607 250,432 153,213 224,373 155,586 Pretax income from continuing operations 115,685 79,984 137,450 70,677 116,495 Income tax provision (benefit) 45,594 34,791 45,723 (807,349 ) (15,536 ) Net income from continuing operations 70,091 45,193 91,727 878,026 132,031 Income (loss) from discontinued operations, net of tax — 4,855 530 (449,691 ) 21,559 Net income $ 70,091 $ 50,048 $ 92,257 $ 428,335 $ 153,590Diluted net income per share:
Net income from continuing operations $ 0.29 $ 0.20 $ 0.39 $ 3.63 $ 0.58 Income (loss) from discontinued operations, net of tax — 0.02 — (1.85 ) 0.09 Net income $ 0.29 $ 0.22 $ 0.39 $ 1.78 $ 0.67Selected Mortgage Insurance Key Ratios
Loss ratio (1) 28.2 % 13.3 % 20.4 % 36.9 % 22.5 % Expense ratio - NPE basis (1) 23.9 % 25.8 % 23.0 % 36.9 % 21.3 % Expense ratio - NPW basis (2) 22.5 % 24.4 % 21.3 % 33.8 % 18.9 %(1)
Calculated on a GAAP basis using net premiums earned (“NPE”).
(2)
Calculated on a GAAP basis using net premiums written (“NPW”).
On April 1, 2015, Radian Guaranty completed the previously disclosed sale of 100% of the issued and outstanding shares of Radian Asset Assurance to Assured, pursuant to the Radian Asset Assurance Stock Purchase Agreement dated as of December 22, 2014. As a result, the operating results of Radian Asset Assurance are classified as discontinued operations for all periods presented in our condensed consolidated statements of operations. See Exhibit D for additional information on discontinued operations.
Radian Group Inc. and Subsidiaries Net Income Per Share Trend Schedule Exhibit B The calculation of basic and diluted net income per share was as follows: 2015 2014(In thousands, except per share amounts)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3 Net income from continuing operations: Net income from continuing operations—basic $ 70,091 $ 45,193 $ 91,727 $ 878,026 $ 132,031 Adjustment for dilutive Convertible Senior Notes due 2019, net of tax (1) 3,714 3,707 3,673 3,641 5,552 Net income from continuing operations—diluted $ 73,805 $ 48,900 $ 95,400 $ 881,667 $ 137,583 Net income: Net income from continuing operations—basic $ 70,091 $ 45,193 $ 91,727 $ 878,026 $ 132,031 Income (loss) from discontinued operations, net of tax — 4,855 530 (449,691 ) 21,559 Net income—basic 70,091 50,048 92,257 428,335 153,590 Adjustment for dilutive Convertible Senior Notes due 2019, net of tax (1) 3,714 3,707 3,673 3,641 5,552 Net income—diluted $ 73,805 $ 53,755 $ 95,930 $ 431,976 $ 159,142 Average common shares outstanding—basic 207,938 193,112 191,224 191,053 191,050 Dilutive effect of Convertible Senior Notes due 2017 1,798 12,438 10,886 10,590 6,342 Dilutive effect of Convertible Senior Notes due 2019 37,736 37,736 37,736 37,736 37,736 Dilutive effect of stock-based compensation arrangements (2) 3,323 3,364 3,202 3,422 2,939 Adjusted average common shares outstanding—diluted 250,795 246,650 243,048 242,801 238,067Net income per share:
Basic: Net income from continuing operations $ 0.34 $ 0.23 $ 0.48 $ 4.60 $ 0.69 Income (loss) from discontinued operations, net of tax — 0.03 — (2.36 ) 0.11 Net income $ 0.34 $ 0.26 $ 0.48 $ 2.24 $ 0.80 Diluted: Net income from continuing operations $ 0.29 $ 0.20 $ 0.39 $ 3.63 $ 0.58 Income (loss) from discontinued operations, net of tax — 0.02 — (1.85 ) 0.09 Net income $ 0.29 $ 0.22 $ 0.39 $ 1.78 $ 0.67(1)
As applicable, includes coupon interest, amortization of discount and fees, and other changes in income or loss that would result from the assumed conversion.
(2)
The following number of shares of our common stock equivalents issued under our stock-based compensation arrangements were not included in the calculation of diluted net income per share because they were anti-dilutive:
2015 2014(In thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3 Shares of common stock equivalents 469 264 540 542 557Radian Group Inc. and Subsidiaries Condensed Consolidated Balance Sheets
Exhibit C
September 30, June 30, March 31, December 31, September 30,(In thousands, except per share data)
2015 2015 2015 2014 2014 Assets: Investments $ 4,376,771 $ 4,309,148 $ 3,621,646 $ 3,629,299 $ 3,529,310 Cash 69,030 51,381 57,204 30,465 30,491 Restricted cash 10,280 12,633 14,220 14,031 16,509 Accounts and notes receivable 65,951 72,093 64,405 85,792 69,029 Deferred income taxes, net 601,893 651,238 649,996 700,201 — Goodwill and other intangible assets, net 287,334 290,640 293,798 288,240 293,632 Other assets 349,657 349,371 340,276 357,864 364,665 Assets held for sale — — 1,755,873 1,736,444 1,637,233 Total assets $ 5,760,916 $ 5,736,504 $ 6,797,418 $ 6,842,336 $ 5,940,869 Liabilities and stockholders’ equity: Unearned premiums $ 676,938 $ 665,947 $ 657,555 $ 644,504 $ 625,269 Reserve for losses and loss adjustment expenses 1,098,570 1,204,792 1,384,714 1,560,032 1,591,150 Long-term debt 1,230,246 1,224,892 1,202,535 1,192,299 1,182,247 Other liabilities 311,855 278,929 310,642 326,743 314,395 Liabilities held for sale — — 966,078 947,008 493,407 Total liabilities 3,317,609 3,374,560 4,521,524 4,670,586 4,206,468 Equity component of currently redeemable convertible senior notes 7,737 8,546 68,982 74,690 — Common stock 224 226 209 209 209 Additional paid-in capital 1,825,034 1,816,545 1,648,436 1,638,552 1,706,222 Retained earnings (deficit) 617,731 548,161 498,593 406,814 (21,044 ) Accumulated other comprehensive (loss) income (7,419 ) (11,534 ) 59,674 51,485 49,014 Total common stockholders’ equity 2,435,570 2,353,398 2,206,912 2,097,060 1,734,401 Total liabilities and stockholders’ equity $ 5,760,916 $ 5,736,504 $ 6,797,418 $ 6,842,336 $ 5,940,869 Shares outstanding 206,870 208,587 191,416 191,054 191,050 Book value per share $ 11.77 $ 11.28 $ 11.53 $ 10.98 $ 9.08
Radian Group Inc. and Subsidiaries
Discontinued Operations
Exhibit D
The income from discontinued operations, net of tax consisted of the following components for the periods indicated:
2015(In thousands)
Qtr 2 Qtr 1 Net premiums earned $ — $ 1,007 Net investment income — 9,153 Net gains on investments and other financial instruments 7,818 13,668 Change in fair value of derivative instruments — 2,625 Total revenues 7,818 26,453 Provision for losses — 502 Policy acquisition costs — (191 ) Other operating expense — 4,107 Total expenses — 4,418 Equity in net loss of affiliates — (13 ) Income from operations of businesses held for sale 7,818 22,022 Loss on sale (350 ) (13,930 ) Income tax provision 2,613 7,562 Income from discontinued operations, net of tax $ 4,855 $ 530
Radian Group Inc. and Subsidiaries
Segment Information
Exhibit E (page 1 of 2)
Summarized financial information concerning our operating segments as of and for the periods indicated, is as follows. For a definition of adjusted pretax operating income and EBITDA, along with reconciliations to consolidated GAAP measures, see Exhibits F and G. Mortgage Insurance 2015 2014(In thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3 Net premiums written - insurance $ 242,168 $ 251,082 $ 241,908 $ 244,506 $ 245,775 Increase in unearned premiums (14,735 ) (13,645 ) (17,313 ) (20,213 ) (27,948 ) Net premiums earned - insurance 227,433 237,437 224,595 224,293 217,827 Net investment income (1) 22,091 19,285 17,328 16,531 17,143 Other income (1) 1,711 1,743 1,331 1,668 1,037 Total 251,235 258,465 243,254 242,492 236,007 Provision for losses 64,128 31,637 45,851 83,649 48,942 Change in expected economic loss or recovery for consolidated VIEs — — — (16 ) (190 ) Policy acquisition costs 2,880 6,963 7,750 6,443 4,240 Other operating expenses before corporate allocations 36,632 41,853 34,050 62,591 33,679 Total (2) 103,640 80,453 87,651 152,667 86,671 Adjusted pretax operating income before corporate allocations 147,595 178,012 155,603 89,825 149,336 Allocation of corporate operating expenses (1) 14,893 12,516 9,758 13,729 8,520 Allocation of interest expense (1) 16,797 20,070 19,953 19,760 19,565 Adjusted pretax operating income $ 115,905 $ 145,426 $ 125,892 $ 56,336 $ 121,251 Services 2015 2014(In thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3 Services revenue $ 43,114 $ 44,595 $ 31,532 $ 34,466 $ 42,243 Other income — — — 891 125 Total (2) 43,114 44,595 31,532 35,357 42,368 Direct cost of services 25,870 25,501 19,253 19,709 23,896 Other operating expenses before corporate allocations 11,533 11,522 8,857 8,360 9,054 Total 37,403 37,023 28,110 28,069 32,950 Adjusted pretax operating income before corporate allocations (3) 5,711 7,572 3,422 7,288 9,418 Allocation of corporate operating expenses 1,567 1,307 981 740 404 Allocation of interest expense 4,423 4,431 4,432 4,440 4,424 Adjusted pretax operating (loss) income $ (279 ) $ 1,834 $ (1,991 ) $ 2,108 $ 4,590(1)
For periods prior to the quarter ended June 30, 2015, includes certain corporate income and expenses that have been reallocated from our prior financial guaranty segment to the Mortgage Insurance segment and that were not reclassified to discontinued operations.
(2)
Inter-segment information:
2015 2014 Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3 Inter-segment expense included in Mortgage Insurance segment $ 925 $ 1,092 $ 902 $ 782 $ — Inter-segment revenue included in Services segment 925 1,092 902 782 —
Radian Group Inc. and Subsidiaries
Segment Information
Exhibit E (page 2 of 2)
(3) Supplemental information for Services EBITDA (see definition in Exhibit F):
2015 2014 Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3 Adjusted pretax operating income before corporate allocations $ 5,711 $ 7,572 $ 3,422 $ 7,288 $ 9,418 Depreciation and amortization 555 482 449 442 383 Services EBITDA $ 6,266 $ 8,054 $ 3,871 $ 7,730 $ 9,801 At September 30, 2015(In thousands)
MortgageInsurance
Services Total Total assets $ 5,408,200 $ 352,716 $ 5,760,916 At December 31, 2014(In thousands)
MortgageInsurance
Services Total Assets held for sale (1) $ — $ — $ 1,736,444 Total assets 4,769,014 336,878 6,842,336(1)
Assets held for sale are not part of the Mortgage Insurance or Services segments.
Radian Group Inc. and Subsidiaries
Definition of Consolidated Non-GAAP Financial Measure
Exhibit F (page 1 of 2)
Use of Non-GAAP Financial Measure
In addition to the traditional GAAP financial measures, we have presented non-GAAP financial measures for the consolidated company, “adjusted pretax operating income (loss)” and “adjusted diluted net operating income (loss) per share,” among our key performance indicators to evaluate our fundamental financial performance. These non-GAAP financial measures align with the way the Company’s business performance is evaluated by both management and the board of directors. These measures have been established in order to increase transparency for the purposes of evaluating our core operating trends and enabling more meaningful comparisons with our peers. Although on a consolidated basis “adjusted pretax operating income (loss)” and “adjusted diluted net operating income (loss) per share” are non-GAAP financial measures, we believe these measures aid in understanding the underlying performance of our operations. Our senior management, including our Chief Executive Officer (the Company’s chief operating decision maker), uses adjusted pretax operating income (loss) as our primary measure to evaluate the fundamental financial performance of the Company’s business segments and to allocate resources to the segments.
Adjusted pretax operating income (loss) is defined as GAAP pretax income (loss) from continuing operations excluding the effects of net gains (losses) on investments and other financial instruments, loss on induced conversion and debt extinguishment, acquisition-related expenses, amortization and impairment of intangible assets and net impairment losses recognized in earnings. Adjusted diluted net operating income (loss) per share is calculated by dividing (i) adjusted pretax operating income (loss) attributable to common shareholders, net of taxes computed using the company’s statutory tax rate, by (ii) the sum of the weighted average number of common shares outstanding and all dilutive potential common shares outstanding. Interest expense on convertible debt, share dilution from convertible debt and the impact of stock-based compensation arrangements have been reflected in the per share calculations consistent with the accounting standard regarding earnings per share, whenever the impact is dilutive.
Although adjusted pretax operating income (loss) excludes certain items that have occurred in the past and are expected to occur in the future, the excluded items represent those that are: (1) not viewed as part of the operating performance of our primary activities; or (2) not expected to result in an economic impact equal to the amount reflected in pretax income (loss) from continuing operations. These adjustments, along with the reasons for their treatment, are described below.
(1)Net gains (losses) on investments and other financial instruments. The recognition of realized investment gains or losses can vary significantly across periods as the activity is highly discretionary based on the timing of individual securities sales due to such factors as market opportunities, our tax and capital profile and overall market cycles. Unrealized investment gains and losses arise primarily from changes in the market value of our investments that are classified as trading. These valuation adjustments may not necessarily result in economic gains or losses.
Trends in the profitability of our fundamental operating activities can be more clearly identified without the fluctuations of these realized and unrealized gains or losses. We do not view them to be indicative of our fundamental operating activities. Therefore, these items are excluded from our calculation of adjusted pretax operating income (loss). However, we include the change in expected economic loss or recovery associated with our consolidated VIEs, if any, in the calculation of adjusted pretax operating income (loss). (2)Loss on induced conversion and debt extinguishment. Gains or losses on early extinguishment of debt or losses incurred to induce conversion of convertible debt prior to maturity are discretionary activities that are undertaken in order to take advantage of market opportunities to strengthen our financial position; therefore, these activities are not viewed as part of our operating performance. Such transactions do not reflect expected future operations and do not provide meaningful insight regarding our current or past operating trends. Therefore, these items are excluded from our calculation of adjusted pretax operating income (loss).
(3)Acquisition-related expenses. Acquisition-related expenses represent the costs incurred to effect an acquisition of a business (i.e., a business combination). Because we pursue acquisitions on a strategic and selective basis and not in the ordinary course of our business, we do not view acquisition-related expenses as a consequence of a primary business activity. Therefore, we do not consider these expenses to be part of our operating performance and they are excluded from our calculation of adjusted pretax operating income (loss).
Radian Group Inc. and Subsidiaries
Definition of Consolidated Non-GAAP Financial Measure
Exhibit F (page 2 of 2)
(4)Amortization and impairment of intangible assets. Amortization of intangible assets represents the periodic expense required to amortize the cost of intangible assets over their estimated useful lives. Intangible assets with an indefinite useful life are also periodically reviewed for potential impairment, and impairment adjustments are made whenever appropriate. These charges are not viewed as part of the operating performance of our primary activities and therefore are excluded from our calculation of adjusted pretax operating income (loss).
(5)Net impairment losses recognized in earnings. The recognition of net impairment losses on investments can vary significantly in both size and timing, depending on market credit cycles. We do not view these impairment losses to be indicative of our fundamental operating activities. Therefore, whenever these losses occur, we exclude them from our calculation of adjusted pretax operating income (loss).
In addition to the above non-GAAP measures for the consolidated company, we also have presented as supplemental information a non-GAAP measure for our Services segment, representing earnings before interest, income taxes, depreciation and amortization (“EBITDA”). We calculate Services EBITDA by using adjusted pretax operating income as described above, further adjusted to remove the impact of depreciation and corporate allocations for interest and operating expenses. We have presented Services EBITDA to facilitate comparisons with other services companies, since it is a widely accepted measure of performance in the services industry.
See Exhibit G for the reconciliation of our non-GAAP financial measures for the consolidated company, adjusted pretax operating income and adjusted diluted net operating income per share, to the most comparable GAAP measures, pretax income from continuing operations and net income per share from continuing operations, respectively. Exhibit G also contains the reconciliation of Services EBITDA to the most comparable GAAP measure, pretax income from continuing operations.
Total adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share and Services EBITDA are not measures of total profitability, and therefore should not be viewed as substitutes for GAAP pretax income (loss) from continuing operations or net income (loss) per share from continuing operations. Our definitions of adjusted pretax operating income (loss), adjusted diluted net operating income (loss) per share or EBITDA may not be comparable to similarly-named measures reported by other companies.
Radian Group Inc. and Subsidiaries Consolidated Non-GAAP Financial Measure ReconciliationsExhibit G (page 1 of 2)
Reconciliation of Adjusted Pretax Operating Income (Loss) to Consolidated Pretax Income from Continuing Operations 2015 2014(In thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3 Adjusted pretax operating income (loss): Mortgage Insurance (1) $ 115,905 $ 145,426 $ 125,892 $ 56,336 $ 121,251 Services (2) (279 ) 1,834 (1,991 ) 2,108 4,590 Total adjusted pretax operating income 115,626 147,260 123,901 58,444 125,841 Net gains (losses) on investments and other financial instruments (3) 3,868 28,448 16,779 17,967 (6,484 ) Loss on induced conversion and debt extinguishment (11 ) (91,876 ) — — — Acquisition-related expenses (4) (525 ) (567 ) (207 ) (380 ) 432 Amortization and impairment of intangible assets (4) (3,273 ) (3,281 ) (3,023 ) (5,354 ) (3,294 ) Consolidated pretax income from continuing operations $ 115,685 $ 79,984 $ 137,450 $ 70,677 $ 116,495(1)
For periods prior to the quarter ended June 30, 2015, includes certain corporate income and expenses that have been reallocated from our prior financial guaranty segment to the Mortgage Insurance segment and that were not reclassified to discontinued operations.
(2)
Effective with the fourth quarter of 2014, the Services segment undertook the management responsibilities of certain additional loan servicer surveillance functions previously considered part of the Mortgage Insurance segment. As a result, these activities are now reported in the Services segment for all periods presented.
(3)
This line item includes a de minimis amount of expected economic loss or recovery associated with our previously consolidated VIEs that is included in adjusted pretax operating income above.
(4)
Please see Exhibit F for the definition of this line item.
Reconciliation of Adjusted Diluted Net Operating Income Per Share (1) to Net Income Per Share from Continuing Operations
2015 2014 Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3 Adjusted diluted net operating income per share $ 0.31 $ 0.40 $ 0.35 $ 0.17 $ 0.37 After tax per share impact: Net gains (losses) on investments and other financial instruments 0.01 0.07 0.04 0.05 (0.02 ) Loss on induced conversion and debt extinguishment — (0.28 ) — — — Amortization and impairment of intangible assets (0.01 ) (0.01 ) (0.01 ) (0.01 ) (0.01 ) Difference between statutory and effective tax rate (0.02 ) 0.02 0.01 3.42 0.24 Net income per share from continuing operations $ 0.29 $ 0.20 $ 0.39 $ 3.63 $ 0.58(1)
Calculated using the company’s statutory tax rate.
Radian Group Inc. and Subsidiaries Consolidated Non-GAAP Financial Measure Reconciliations Exhibit G (page 2 of 2) Reconciliation of Services Segment EBITDA to Consolidated Pretax Income from Continuing Operations 2015 2014
(In thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3 Services EBITDA $ 6,266 $ 8,054 $ 3,871 $ 7,730 $ 9,801 Allocation of corporate operating expenses to Services (1,567 ) (1,307 ) (981 ) (740 ) (404 ) Allocation of corporate interest expenses to Services (4,423 ) (4,431 ) (4,432 ) (4,440 ) (4,424 ) Services depreciation and amortization (555 ) (482 ) (449 ) (442 ) (383 ) Services adjusted pretax operating (loss) income (279 ) 1,834 (1,991 ) 2,108 4,590 Mortgage Insurance adjusted pretax operating income 115,905 145,426 125,892 56,336 121,251 Total adjusted pretax operating income 115,626 147,260 123,901 58,444 125,841 Net gains (losses) on investments and other financial instruments 3,868 28,448 16,779 17,967 (6,484 ) Loss on induced conversion and debt extinguishment (11 ) (91,876 ) — — — Acquisition-related expenses (525 ) (567 ) (207 ) (380 ) 432 Amortization and impairment of intangible assets (3,273 ) (3,281 ) (3,023 ) (5,354 ) (3,294 ) Consolidated pretax income from continuing operations $ 115,685 $ 79,984 $ 137,450 $ 70,677 $ 116,495On a consolidated basis, “adjusted pretax operating income” and “adjusted diluted net operating income per share” are measures not determined in accordance with GAAP. “Services EBITDA” is also a non-GAAP measure. These measures are not representative of total profitability, and therefore should not be viewed as substitutes for GAAP pretax income from continuing operations or net income per share from continuing operations. Our definitions of adjusted pretax operating income, adjusted diluted net operating income per share or EBITDA may not be comparable to similarly-named measures reported by other companies. See Exhibit F for additional information on our consolidated non-GAAP financial measures.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - New Insurance Written Exhibit H 2015 2014($ in millions)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3 Total primary new insurance written $ 11,176 $ 11,751 $ 9,385 $ 10,009 $ 11,210Percentage of primary new insurance written by FICO score
>=740 61.0 % 63.0 % 63.6 % 60.2 % 61.6 %680-739
31.9 30.8 30.3 32.6 31.2620-679
7.1 6.2 6.1 7.2 7.2 Total Primary 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %Percentage of primary new insurance written
Monthly premiums 73 % 68 % 63 % 69 % 72 % Single premiums 27 % 32 % 37 % 31 % 28 % Refinances 13 % 23 % 33 % 22 % 16 % LTV 95.01% and above 3.5 % 3.2 % 1.8 % 0.5 % 0.3 % 90.01% to 95.00% 51.5 % 49.4 % 48.4 % 51.7 % 53.7 % 85.01% to 90.00% 34.1 % 34.0 % 33.3 % 33.2 % 33.5 % 85.00% and below 10.9 % 13.4 % 16.5 % 14.6 % 12.5 %Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information - Primary Insurance in Force and Risk in Force by Product, Statutory Capital Ratios Exhibit I September 30, June 30, March 31, December 31, September 30, ($ in millions) 2015 2015 2015 2014 2014
Primary insurance in force (1)
Flow $ 166,527 $ 164,137 $ 162,832 $ 162,302 $ 159,770 Structured 8,339 8,555 9,309 9,508 9,452 Total Primary $ 174,866 $ 172,692 $ 172,141 $ 171,810 $ 169,222 Prime $ 164,060 $ 161,397 $ 160,452 $ 159,647 $ 156,581 Alt-A 6,531 6,857 7,122 7,412 7,709 A minus and below 4,275 4,438 4,567 4,751 4,932 Total Primary $ 174,866 $ 172,692 $ 172,141 $ 171,810 $ 169,222Primary risk in force (1) (2)
Flow $ 42,454 $ 41,706 $ 41,256 $ 41,071 $ 40,337 Structured 1,910 1,957 2,133 2,168 2,150 Total Primary $ 44,364 $ 43,663 $ 43,389 $ 43,239 $ 42,487 Flow Prime $ 40,629 $ 39,781 $ 39,251 $ 38,977 $ 38,156 Alt-A 1,124 1,191 1,243 1,295 1,350 A minus and below 701 734 762 799 831 Total Flow $ 42,454 $ 41,706 $ 41,256 $ 41,071 $ 40,337 Structured Prime $ 1,155 $ 1,182 $ 1,341 $ 1,349 $ 1,302 Alt-A 386 397 410 425 441 A minus and below 369 378 382 394 407 Total Structured $ 1,910 $ 1,957 $ 2,133 $ 2,168 $ 2,150 Total Prime $ 41,784 $ 40,963 $ 40,592 $ 40,326 $ 39,458 Alt-A 1,510 1,588 1,653 1,720 1,791 A minus and below 1,070 1,112 1,144 1,193 1,238 Total Primary $ 44,364 $ 43,663 $ 43,389 $ 43,239 $ 42,487Statutory Capital Ratios
Risk to capital ratio-Radian Guaranty only 16.5:1(3)
16.5:1 17.1:1 17.9:1 18.4:1 Risk to capital ratio-Mortgage Insurance combined 17.9:1(3)
18.0:1 19.1:1 20.3:1 21.2:1(1)
Includes amounts ceded under our reinsurance agreements, as well as amounts related to the Freddie Mac Agreement.
(2)
Does not include pool risk in force or other risk in force, which combined represent less than 3.0% of our total risk in force for all periods presented.
(3)
Preliminary.
Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information - Percentage of Primary Risk in Force by FICO, LTV and Policy Year Exhibit J September 30, June 30, March 31, December 31, September 30, ($ in millions) 2015 2015 2015 2014 2014
Percentage of primary risk in force by FICO score
Flow >=740 58.2 % 58.1 % 58.1 % 58.1 % 58.0 % 680-739 30.3 30.2 30.0 29.7 29.5 620-679 10.3 10.5 10.6 10.8 11.0 <=619 1.2 1.2 1.3 1.4 1.5 Total Flow 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Structured >=740 28.9 % 28.7 31.1 % 30.3 % 28.7 % 680-739 27.9 27.9 28.1 28.5 28.3 620-679 25.2 25.4 24.1 24.3 25.4 <=619 18.0 18.0 16.7 16.9 17.6 Total Structured 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Total >=740 57.0 % 56.7 % 56.8 % 56.7 % 56.6 % 680-739 30.2 30.1 29.8 29.6 29.4 620-679 10.9 11.2 11.3 11.6 11.7 <=619 1.9 2.0 2.1 2.1 2.3 Total Primary 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %Percentage of primary risk in force by LTV
95.01% and above 7.4 % 7.6 % 7.9 % 8.2 % 8.6 % 90.01% to 95.00% 49.8 49.0 48.2 47.5 46.5 85.01% to 90.00% 34.3 34.6 35.0 35.4 35.8 85.00% and below 8.5 8.8 8.9 8.9 9.1 Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 %Percentage of primary risk in force by policy year
2005 and prior
6.8 % 7.3 % 7.8 % 8.2 % 8.8 %2006
3.9 4.2 4.4 4.6 4.92007
9.1 9.6 10.2 10.6 11.12008
6.6 7.0 7.5 7.9 8.32009
1.8 2.0 2.3 2.5 2.82010
1.5 1.7 2.0 2.1 2.32011
3.1 3.5 3.9 4.2 4.52012
12.0 13.0 14.2 15.1 16.22013
19.2 20.8 22.4 23.8 25.12014
18.0 19.0 20.0 21.0 16.02015
18.0 11.9 5.3 — — Total 100.0 % 100.0 % 100.0 % 100.0 % 100.0 % Primary risk in force on defaulted loans (1) $ 1,666 $ 1,753 $ 1,883 $ 2,089 $ 2,168(1) Excludes risk related to loans subject to the Freddie Mac Agreement.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Claims and Reserves
Exhibit K
2015 2014($ in thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 3 Net claims paid Prime $ 65,396 $ 83,489 $ 76,186 $ 74,342 $ 104,440 Alt-A 18,966 23,260 19,999 21,909 26,882 A minus and below 14,028 14,965 15,141 12,600 19,658 Total primary claims paid 98,390 121,714 111,326 108,851 150,980 Pool 8,721 10,798 8,874 8,086 8,880 Second-lien and other (16 ) (53 ) (111 ) 283 490 Subtotal 107,095 132,459 120,089 117,220 160,350 Impact of captive terminations — — (12,000 ) — — Impact of settlements 61,994 79,557 99,006 — 13,500 Total $ 169,089 $ 212,016 $ 207,095 $ 117,220 $ 173,850 Average claim paid (1) Prime $46.2
$ 48.1 $ 44.0 $ 48.7 $ 49.2 Alt-A 60.2 59.5 54.6 58.7 56.7 A minus and below 42.5 40.1 35.9 39.3 40.3 Total primary average claims paid 47.8 48.7 44.2 49.0 49.0 Pool 51.3 69.7 51.5 46.5 48.0 Second-lien and other (1.6 ) (3.5 ) (12.3 ) 7.6 18.9 Total $ 47.8 $ 49.6 $ 44.5 $ 48.2 $ 48.7 Average primary claim paid (2) $ 48.5 $ 49.6 $ 45.3 $ 50.4 $ 50.0 Average total claim paid (2) $ 48.5 $ 50.4 $ 45.5 $ 49.4 $ 49.6($ in thousands, except primary reserve per
September 30, June 30, March 31, December 31, September 30,primary default amounts)
2015 2015 2015 2014 2014 Reserve for losses by category Prime $ 519,572 $ 562,918 $ 640,919 $ 700,174 $ 721,811 Alt-A 234,772 256,854 278,350 292,293 308,283 A minus and below 137,441 148,043 163,390 179,103 182,885 IBNR and other 107,179 125,038 167,204 223,114 212,908 LAE 41,464 48,141 53,210 56,164 52,690 Reinsurance recoverable (3) 11,071 11,677 13,365 26,665 21,201 Total primary reserves 1,051,499 1,152,671 1,316,438 1,477,513 1,499,778 Pool insurance 43,234 47,902 62,943 75,785 80,664 IBNR and other 949 891 1,227 1,775 2,468 LAE 1,983 2,353 3,051 3,542 3,434 Total pool reserves 46,166 51,146 67,221 81,102 86,566 Total 1st lien reserves 1,097,665 1,203,817 1,383,659 1,558,615 1,586,344 Second-lien and other 905 975 1,055 1,417 1,787 Total reserves $ 1,098,570 $ 1,204,792 $ 1,384,714 $ 1,560,032 $ 1,588,131 1st lien reserve per default Primary reserve per primary default excluding IBNR and other $ 26,237 $ 27,279 $ 28,423 $ 27,683 $ 27,477(1)
Net of reinsurance recoveries and without giving effect to the impact of captive terminations and settlements.
(2)
Before reinsurance recoveries and without giving effect to the impact of captive terminations and settlements.
(3)
Primarily represents ceded losses on captive transactions and quota share reinsurance transactions.
Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information - Default Statistics Exhibit L September 30,
June 30,
March 31, December 31, September 30, 2015 2015 2015 2014 2014Default Statistics
Primary Insurance:Prime
Number of insured loans 812,657 802,719 801,332 797,436 783,414 Number of loans in default 22,328 23,237 25,114 28,246 28,963 Percentage of loans in default 2.75 % 2.89 % 3.13 % 3.54 % 3.70 %Alt-A
Number of insured loans 34,166 35,927 37,468 38,953 40,319 Number of loans in default 6,318 6,949 7,480 8,136 8,629 Percentage of loans in default 18.49 % 19.34 % 19.96 % 20.89 % 21.40 %A minus and below
Number of insured loans 33,018 34,224 35,425 36,688 37,843 Number of loans in default 7,229 7,490 7,846 8,937 9,251 Percentage of loans in default 21.89 % 21.89 % 22.15 % 24.36 % 24.45 %Total Primary
Number of insured loans 879,841 872,870 874,225 873,077 861,576 Number of loans in default (1) 35,875 37,676 40,440 45,319 46,843 Percentage of loans in default 4.08 % 4.32 % 4.63 % 5.19 % 5.44 %(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:
September 30,June 30,
March 31, December 31, September 30, 2015 2015 2015 2014 2014 Number of loans in default 2,993 3,246 3,715 4,467 4,824Radian Group Inc. and Subsidiaries Mortgage Insurance Supplemental Information - Captives, QSR and Persistency Exhibit M 2015 2014
($ in thousands)
Qtr 3 Qtr 2 Qtr 1 Qtr 4 Qtr 31st Lien Captives
Premiums ceded to captives $ 2,434 $ 2,700 $ 2,585 $ 3,078 $ 3,096 % of total premiums 1.0 % 1.1 % 1.1 % 1.3 % 1.3 % Insurance in force included in captives (1) 2.2 % 2.4 % 2.5 % 2.8 % 3.0 % Risk in force included in captives (1) 2.1 % 2.2 % 2.4 % 2.7 % 2.9 %Initial Quota Share Reinsurance (“QSR”) Transaction
QSR ceded premiums written $ 3,437 $ 3,822 $ 4,067 $ (4,801 ) $ 4,668 % of premiums written 1.4 % 1.5 % 1.6 % (1.9 )% 1.8 % QSR ceded premiums earned $ 5,067 $ 6,425 $ 6,018 $ (2,869 ) $ 6,578 % of premiums earned 2.1 % 2.6 % 2.5 % (1.2 )% 2.8 % Ceding commissions $ 745 $ 828 $ 880 $ 1,108 $ 1,166 Risk in force included in QSR (2) $ 889,298 $ 954,673 $ 1,041,383 $ 1,105,545 $ 1,170,496Second QSR Transaction
QSR ceded premiums written $ 5,030 $ 394 $ 6,529 $ 9,303 $ 9,082 % of premiums written 2.0 % 0.2 % 2.6 % 3.7 % 3.5 % QSR ceded premiums earned $ 7,134 $ 3,040 $ 8,768 $ 8,339 $ 7,699 % of premiums earned 3.0 % 1.2 % 3.6 % 3.6 % 3.3 % Ceding commissions $ 1,998 $ 2,154 $ 2,285 $ 3,256 $ 3,179 Risk in force included in QSR (2) $ 1,364,615 $ 1,440,312 $ 1,533,677 $ 1,615,554 $ 1,546,311 Persistency (twelve months ended) (3) 79.2 % 80.1 % 82.6 % 84.2 % 84.3 % Persistency (quarterly, annualized) 80.5 % 76.2 % 80.3 % 83.3 % 84.0 %(1)
Radian reinsures the middle layer risk positions, while retaining a significant portion of the total risk comprising the first loss and most remote risk positions.
(2)
Included in primary risk in force.
(3)
Effective March 31, 2015, we refined our persistency calculation to incorporate loan level detail rather than aggregated portfolio data. Prior periods have been recalculated and reflect the current calculation methodology.
FORWARD-LOOKING STATEMENTS
All statements in this report that address events, developments or results that we expect or anticipate may occur in the future are "forward-looking statements" within the meaning of Section 27A of the Securities Act of 1933, Section 21E of the Exchange Act and the U.S. Private Securities Litigation Reform Act of 1995. In most cases, forward-looking statements may be identified by words such as "anticipate," "may," "will," "could," "should," "would," "expect," "intend," "plan," "goal," "contemplate," "believe," "estimate," "predict," "project," "potential," "continue," "seek," "strategy," "future," "likely" or the negative or other variations on these words and other similar expressions. These statements, which may include, without limitation, projections regarding our future performance and financial condition, are made on the basis of management's current views and assumptions with respect to future events. Any forward-looking statement is not a guarantee of future performance and actual results could differ materially from those contained in the forward-looking statement. These statements speak only as of the date they were made, and we undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. We operate in a changing environment. New risks emerge from time to time and it is not possible for us to predict all risks that may affect us. The forward-looking statements, as well as our prospects as a whole, are subject to risks and uncertainties that could cause actual results to differ materially from those set forth in the forward-looking statements including:
For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of Part I of our Annual Report on Form 10-K for the year ended December 31, 2014 and in our subsequent reports and registration statements filed from time to time with the U.S. Securities and Exchange Commission. We caution you not to place undue reliance on these forward-looking statements, which are current only as of the date on which we issued this press release. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements to reflect new information or future events or for any other reason.
View source version on businesswire.com: http://www.businesswire.com/news/home/20151027005465/en/
Radian Group Inc.Emily Riley, 215-231-1035emily.riley@radian.biz
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