Triad Guaranty Inc. Reports 2010 Third Quarter Results

WINSTON-SALEM, N.C., Nov. 11, 2010 /PRNewswire-FirstCall/ -- Triad Guaranty Inc. (OTC Bulletin Board: TGIC) today reported net income of $54.0 million, which includes $29.6 million attributable to the repurchase of its long-term debt (reported as an extraordinary item) and $14.7 million attributable to realized investment gains, for the third quarter ended September 30, 2010 compared to net income of $79.1 million for the second quarter of 2010 and a net loss of $101.9 million for the third quarter of 2009.  The 2010 third quarter diluted income per share was $3.56 ($1.61 per share before extraordinary item) compared to diluted income per share of $5.24 for the 2010 second quarter and diluted loss per share of $6.78 for the 2009 third quarter.

The net income for the nine months ended September 30, 2010 was $105.3 million ($75.7 million before extraordinary item) compared to a net loss of $516.5 million for the nine months ended September 30, 2009.  The diluted income per share was $6.96 ($5.00 per share before extraordinary item) for the nine months ended September 30, 2010 compared to a diluted loss per share of $34.44 for the nine months ended September 30, 2009.

Ken Jones, President and CEO, said, "We continued to see improvement on various operating fronts during the third quarter.  Persistency, the key driver of our earned premiums, remained high, while the number of defaults and the corresponding risk in default continued their decline as cure rates and rescission rates remained consistent with the prior quarter.  The decline in our risk in default once again led to a decrease in reserves, making this the fifth consecutive quarter that we have reported a decrease in reserves.  Approximately 35% of the decrease in reserves was the result of a reduction in factors utilized in our reserve assumptions.  During the third quarter, we also saw a slowdown in settled claims as foreclosures slowed.  At this time, we are unsure what impact, if any, the current documentation issue surrounding foreclosures will have on our future financial results.  While we are encouraged by the performance of our insured portfolio, we remain cautious about the outlook for the remainder of 2010 and continuing into 2011 due to a slower than expected U.S. economic recovery, lingering high unemployment rates and stagnant home prices.

Mr. Jones continued, "In July we repurchased all of our outstanding long-term debt from our bondholders at less than face value, resulting in a $29.6 million gain that was reported as an extraordinary item in our third quarter financial statements.  This action better positions us, as a company in run-off, to maintain our focus on the efficient and effective servicing of our insured portfolio, particularly with respect to loss management, in order to maximize our claims-paying ability.  We also realized net investment gains of $14.7 million during the third quarter, which were due primarily to the repositioning of our investment portfolio to reflect the delays in claim settlements.  Finally, while our financial position improved during the last two quarters, our deficit in assets remains substantial and was $595.4 million at September 30, 2010.  To meet all of our existing obligations, we will need to earn at least $596 million during the remaining run-off of our business.  We believe that, absent significant positive changes in the economy and the residential real estate market, our existing assets and future premiums may not be sufficient to meet our current and future policyholder obligations."

For additional information concerning our results for the third quarter of 2010 and our financial position at September 30, 2010, please see our Quarterly Report on Form 10-Q for the quarter ended September 30, 2010, which will be filed with the Securities and Exchange Commission and will be available at www.sec.gov or via our web site at www.triadguaranty.com.  We have updated the quarterly statistical and supplemental information for the 2010 third quarter results on our web site at www.triadguaranty.com.  The supplemental information can be found under "Investors" and then under "Webcasts and Presentations" by the title "Supplemental Information – Third Quarter 2010".

(Relevant Triad Guaranty Inc. financial and statistical information follows)

Triad Guaranty Inc.'s wholly owned subsidiary, Triad Guaranty Insurance Corporation, is a nationwide mortgage insurer pursuing a run-off of its existing in-force book of business.  For more information, please visit the Company's web site at www.triadguaranty.com.

Certain of the statements contained in this release are "forward-looking statements" and are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. These statements include estimates and assumptions related to economic, competitive, regulatory, operational and legislative developments. These forward-looking statements are subject to change, uncertainty and circumstances that are, in many instances, beyond our control and they have been made based upon our current expectations and beliefs concerning future developments and their potential effect on us. Actual developments and their results could differ materially from those expected by us, depending on the outcome of a number of factors, including: the possibility that the Illinois Department of Insurance may take various actions regarding Triad if it does not operate its business in accordance with its revised financial and operating plan and the corrective orders, including seeking receivership proceedings; our ability to operate our business in run-off and maintain a solvent run-off; our ability to continue as a going concern; the possibility of general economic and business conditions that are different than anticipated; legislative, regulatory, and other similar developments; changes in interest rates, employment rates, the housing market, the mortgage industry and the stock market; legal and other proceedings regarding modifications and refinancing of mortgages and/or foreclosure proceedings; the possibility that there will not be adequate interest in our common stock on the over the counter markets to ensure efficient pricing; and various factors described under "Risk Factors" and in the "Safe Harbor Statement under the Private Securities Litigation Reform Act of 1995" in our Annual Report on Form 10-K for the year ended December 31, 2009 and in other reports and statements filed with the Securities and Exchange Commission.  Forward-looking statements are based upon our current expectations and beliefs concerning future events and we undertake no obligation to update or revise any forward-looking statements to reflect the impact of circumstances or events that arise after the date the forward-looking statements are made, except as otherwise required by law.

Triad Guaranty Inc.
Consolidated Statements of Operations
		Three Months Ended				Nine Months Ended
		September 30,				September 30,
		(Unaudited)				(Unaudited)
		2010		2009		2010		2009
		(Dollars in thousands except per share amounts)
Revenues:
	Earned premiums	$ 44,278		$    35,576		$ 162,496		$  144,767
	Net investment income	9,681		12,342		30,115		34,393
	Net realized investment gains	14,694		3,253		13,467		705
	Other (expense) income	(29)		127		(37)		131
	Total revenues	68,624		51,298		206,041		179,996
Losses and Expenses:
	Net settled claims	132,139		157,881		233,915		361,664
	Change in reserves	(97,229)		(15,836)		(144,082)		302,748
	Loss adjustment expenses	491		3,713		10,036		14,291
	Net losses and loss adjustment expenses	35,401		145,758		99,869		678,703
	Interest expense	2,642		1,202		7,927		3,791
	Other operating expenses	6,206		9,659		22,559		27,750
	Total losses and expenses	44,249		156,619		130,355		710,244
	Income (loss) before taxes and extraordinary item	24,375		(105,321)		75,686		(530,248)
	Income tax benefit	-		(3,426)		-		(13,760)
	Income (loss) before extraordinary item	24,375		(101,895)		75,686		(516,488)
	Extraordinary item - gain from repurchase and retirement   of long-term debt	29,640		-		29,640		-
	Net income (loss)	$ 54,015		$ (101,895)		$ 105,326		$ (516,488)
Per Share Information:
	Diluted income (loss) per share before extraordinary item	$     1.61		$       (6.78)		$       5.00		$     (34.44)
	Diluted income per share for extraordinary item	1.95		-		1.96		-
	Diluted income (loss) per share	$     3.56		$       (6.78)		$       6.96		$     (34.44)
	Diluted weighted average common and common
	stock equivalents outstanding (in thousands)	15,185		15,033		15,134		14,995

Triad Guaranty Inc.
Consolidated Balance Sheets
			(Unaudited)				(Unaudited)
			September 30,		December 31,		September 30,
			2010		2009		2009
		(Dollars in thousands except per share amounts)
Assets:
	Invested assets:
	Fixed maturities, available for sale, at market		$          879,050		$        784,830		$          814,821
	Equity securities, available for sale, at market		-		-		56
	Short-term investments		26,708		26,651		32,028
			905,758		811,481		846,905
	Cash and cash equivalents		36,823		21,839		7,480
	Reinsurance recoverable		48,155		233,499		245,436
	Other assets		65,416		58,007		54,331
	Total assets		$       1,056,152		$     1,124,826		$       1,154,152
Liabilities:
	Losses and loss adjustment expenses		$       1,200,518		$     1,537,043		$       1,576,303
	Unearned premiums		10,197		12,153		13,385
	Long-term debt		-		34,540		34,537
	Deferred payment obligation		351,720		168,386		97,048
	Other liabilities		89,095		79,062		57,906
	Total liabilities		1,651,530		1,831,184		1,779,179
Stockholders' deficit:
	Accumulated deficit		(745,815)		(851,141)		(771,997)
	Accumulated other comprehensive income		36,228		30,782		33,626
	Other equity accounts		114,209		114,001		113,344
	Deficit in assets		(595,378)		(706,358)		(625,027)
Total liabilities and stockholders' deficit			$       1,056,152		$     1,124,826		$       1,154,152
Stockholders' deficit in assets per share:			$            (39.02)		$           (46.29)		$            (40.96)
Common shares outstanding			15,258,128		15,258,128		15,258,128

Triad Guaranty Inc.
Consolidated Statements of Cash Flow
		Nine Months Ended September 30,
		2010		2009
		(Unaudited)
		(Dollars in Thousands)
OPERATING ACTIVITIES
Net income (loss)		$ 105,326		$ (516,488)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
	Increase (decrease) in loss and unearned premium reserves	(338,481)		385,985
	Decrease (increase) in amounts due to/from reinsurer	185,343		(95,275)
	Net realized investment gains	(13,467)		(705)
	Extraordinary gain on repurchase of long-term debt	(29,640)		-
	Decrease in deferred income taxes	-		(14,841)
	Increase in deferred payment obligation	183,334		97,048
	Other operating activities	(1,562)		29,207
Net cash provided by (used in) operating activities		90,853		(115,069)
INVESTING ACTIVITIES
	Purchases of investment securities	(453,699)		(171,049)
	Sales and maturities of investment securities	382,297		245,225
	(Increase) decrease in short-term investments	(58)		8,538
	Other investing activities	497		(105)
Net cash provided by (used in) investing activities		(70,963)		82,609
FINANCING ACTIVITIES
	Repurchase of long-term debt	(4,906)		-
Net cash provided by (used in) financing activities		(4,906)		0
Net increase (decrease) in cash		14,984		(32,460)
Cash at beginning of period		21,839		39,940
Cash at end of period		$   36,823		$      7,480

Triad Guaranty Inc.
Sequential Quarterly Financial Statements
(unaudited)
		Condensed Statements of Operations For The  Quarter Ended
	(Dollars in thousands)	Sept 30,		Jun 30,		Mar 31,		Dec 31,		Sept 30,		Jun 30,		Mar 31,		Dec 31,		Sep 30,
		2010		2010		2010		2009		2009		2009		2009		2008		2008
Revenue:
	Earned premiums	$      44,278		$      72,330		$      45,888		$      34,891		$      35,576		$      64,833		$      44,358		$      49,840		$      65,654
	Net investment income	9,681		10,561		9,873		9,739		12,342		10,859		11,192		10,509		10,349
	Realized investment gains (losses)	14,694		(985)		(242)		649		3,253		2,017		(4,565)		(18,944)		(6,519)
	Other (expense) income	(29)		-		(8)		12,536		127		2		2		2		2
	Total revenues	68,624		81,906		55,511		57,815		51,298		77,711		50,987		41,407		69,486
Losses and Expenses:
	Net settled claims	132,139		145,460		144,973		153,749		157,881		149,863		53,920		69,372		59,357
	Change in reserves	(97,229)		(158,058)		(77,453)		(30,195)		(15,836)		278,956		39,628		106,080		165,958
	Loss adjustment expenses	491		4,828		4,718		5,370		3,713		2,549		8,029		2,647		5,879
	Net losses and LAE	35,401		(7,770)		72,238		128,924		145,758		431,368		101,577		178,099		231,194
	Interest Expense	2,642		2,816		2,469		2,243		1,202		1,895		694		694		691
	Other operating expenses	6,206		7,021		9,332		8,160		9,659		8,680		9,411		8,639		8,726
	Total losses and expenses	44,249		2,067		84,039		139,327		156,619		441,943		111,682		187,432		240,611
Income (loss) before taxes and extraordinary item		24,375		79,839		(28,528)		(81,512)		(105,321)		(364,232)		(60,695)		(146,025)		(171,125)
	Income taxes (benefit)	-		717		(717)		(2,368)		(3,426)		(4,813)		(5,521)		(23,818)		(11,030)
Income (loss) before extraordinary item		24,375		79,122		(27,811)		(79,144)		(101,895)		(359,419)		(55,174)		(122,207)		(160,095)
	Extraordinary item - gain from repurchase and retirement   of long-term debt	29,640
Net income (loss)		$      54,015		$      79,122		$    (27,811)		$    (79,144)		$  (101,895)		$  (359,419)		$    (55,174)		$  (122,207)		$  (160,095)

		Condensed  Balance Sheets As Of
		Sept 30,		Jun 30,		Mar 31,		Dec 31,		Sept 30,		Jun 30,		Mar 31,		Dec 31,		Sep 30,
		2010		2010		2010		2009		2009		2009		2009		2008		2008
Assets
	Invested assets	$    905,758		$    936,158		$    957,115		$    811,481		$    846,905		$    851,640		$    918,531		$    895,422		$    890,720
	Cash	36,823		35,576		38,662		21,839		7,480		31,600		21,394		39,940		47,818
	Real estate acquired	-		-		-		-		-		-		526		713		3,661
	Prepaid federal income tax	-		-		-		-		-		-		15		15		15
	Reinsurance recoverable	48,155		49,829		52,963		233,499		245,436		234,248		182,589		150,848		111,827
	Other assets	65,416		64,000		54,406		58,007		54,331		57,650		52,307		43,596		47,915
	Total assets	$ 1,056,152		$ 1,085,563		$ 1,103,146		$ 1,124,826		$ 1,154,152		$ 1,175,138		$ 1,175,362		$ 1,130,534		$ 1,101,956
Liabilities and stockholders' deficit
	Liabilities:
	Losses and loss adjustment expenses	$ 1,200,518		$ 1,307,028		$ 1,468,719		$ 1,537,043		$ 1,576,303		$ 1,591,207		$ 1,262,746		$ 1,187,840		$ 1,042,053
	Long term debt	-		34,546		34,543		34,540		34,537		34,535		34,532		34,529		34,527
	Deferred payment obligation	351,720		292,169		229,953		168,386		97,048		27,020		-		-		-
	Accrued expenses and other liabilities	99,292		99,965		102,677		91,215		71,291		52,066		59,477		44,831		30,887
	Total liabilities	1,651,530		1,733,708		1,835,892		1,831,184		1,779,179		1,704,828		1,356,755		1,267,200		1,130,356
	Deficit in assets	(595,378)		(648,145)		(732,746)		(706,358)		(625,027)		(529,690)		(181,393)		(136,666)		(28,400)
	Total liabilities and stockholders' deficit	$ 1,056,152		$ 1,085,563		$ 1,103,146		$ 1,124,826		$ 1,154,152		$ 1,175,138		$ 1,175,362		$ 1,130,534		$ 1,101,956

SOURCE Triad Guaranty Inc.

Copyright 2010 PR Newswire