RDN
$17.78
Radian Group
($.17)
(.95%)
Earnings Details
4th Quarter December 2016
Thursday, January 26, 2017 6:30:03 AM
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Summary

Radian Group (RDN) Recent Earnings

Radian Group (RDN) reported 4th Quarter December 2016 earnings of $0.41 per share on revenue of $274.4 million. The consensus earnings estimate was $0.40 per share on revenue of $268.1 million. Revenue fell 0.2% compared to the same quarter a year ago.

Radian Group Inc, through its subsidiaries and affiliates, provides mortgage insurance on domestic residential First-liens and other products and services to the mortgage and real estate industries. Its segments include mortgage insurance and MRES.

Results
Reported Earnings
$0.41
Earnings Whisper
-
Consensus Estimate
$0.40
Reported Revenue
$274.4 Mil
Revenue Estimate
$268.1 Mil
Growth
Earnings Growth
Revenue Growth
Power Rating
Grade
Earnings Release

Radian Announces Fourth Quarter and Full Year 2016 Financial Results

Fourth quarter adjusted diluted net operating income per share of $0.41; full year of $1.56 -

-- $50.5 billion in new MI business for 2016; sets all-time company record for flow MI -

-- Book value per share increases 11% year-over-year to $13.39 -

Radian Group Inc. (RDN) today reported net income for the quarter ended December 31, 2016, of $61.1 million, or $0.27 per diluted share, which included a net loss on investments and other financial instruments of $38.8 million. Net income for the full year 2016 was $308.3 million, or $1.37 per diluted share, which included net gains on investments and other financial instruments of $30.8 million. This compares to net income for the quarter ended December 31, 2015, of $74.5 million, or $0.32 per diluted share, which included a net loss on investments and other financial instruments of $13.4 million. Net income for the full year 2015 was $286.9 million, or $1.22 per diluted share, which included net gains on investments and other financial instruments of $35.7 million.

Book value per share at December 31, 2016, was $13.39, compared to $13.47 at September 30, 2016, and an increase of 11 percent from $12.07 at December 31, 2015.

Key Financial Highlights (dollars in millions, except per share data)

Year Ended
Year Ended
Percent
December 31, 2016
December 31, 2015
Change
Net income *
$308.3
$286.9
7%
Diluted net income per share
$1.37
$1.22
12%
Pretax income from continuing operations
$483.7
$437.8
10%
Adjusted pretax operating income
$541.8
$510.9
6%
Adjusted diluted net operating income per share **
$1.56
$1.40
11%
Net premiums earned - insurance
$921.8
$915.9
1%
New Mortgage Insurance Written (NIW)
$50,530
$41,411
22%
Book value per share
$13.39
$12.07
11%
Quarter Ended
Quarter Ended
Percent
December 31, 2016
December 31, 2015
Change
Net income
$61.1
$74.5
(18%)
Diluted net income per share
$0.27
$0.32
(16%)
Pretax income
$97.8
$104.7
(7%)
Adjusted pretax operating income
$140.2
$124.1
13%
Adjusted diluted net operating income per share **
$0.41
$0.34
21%
Net premiums earned - insurance
$233.6
$226.4
3%
New Mortgage Insurance Written (NIW)
$13,882
$9,099
53%
*
Includes the significant negative impact of the loss on induced
conversion and debt extinguishment for both year-end periods
**
Adjusted diluted net operating income per share is calculated
using the company’s statutory tax rate of 35 percent.

Adjusted pretax operating income for the quarter ended December 31, 2016, was $140.2 million, compared to $124.1 million for the same period of 2015. Adjusted diluted net operating income per share for the quarter ended December 31, 2016, was $0.41, compared to $0.34 for the same period of 2015, an increase of 21 percent. Adjusted pretax operating income for the year ended December 31, 2016, was $541.8 million, compared to $510.9 million for the same period of 2015. Adjusted diluted net operating income per share for the twelve months ended December 31, 2016, was $1.56, compared to $1.40 for the same period of 2015, an increase of 11 percent. See "Non-GAAP Financial Measures" below as well as Exhibits F and G for additional details regarding these adjusted measures.

"Our strong fourth quarter performance contributed to a solid 2016 for Radian," said Radian’s Chief Executive Officer S.A. Ibrahim. "In 2016, we successfully grew book value by 11%, improved our capital structure and achieved our targeted expense goals, while setting new records for writing our highest volume of high-quality and profitable flow MI business in Radian’s history."

FOURTH QUARTER AND FULL YEAR HIGHLIGHTS

Mortgage Insurance

New mortgage insurance written (NIW) grew to $50.5 billion for the full year 2016, compared to $41.4 billion for the prior year. NIW was $13.9 billion for the quarter, compared to $15.7 billion in the third quarter of 2016 and $9.1 billion in the prior-year quarter. -- NIW for the full year 2016 represented record volume written on a flow basis for the company, and an increase of 22 percent compared to the NIW written for the full year 2015.

For the fourth quarter of 2016, NIW grew 53 percent compared to the fourth quarter of 2015.

Of the $13.9 billion in new business written in the fourth quarter of 2016, 27 percent was written with single premiums. Net single premiums written, after consideration of the 35 percent ceded under the company’s Single Premium Quota Share Reinsurance Agreement, was 17 percent in the fourth quarter of 2016.

Refinances accounted for 27 percent of total NIW in the fourth quarter of 2016, compared to 22 percent in the third quarter of 2016, and 17 percent a year ago.

NIW continued to consist of loans with excellent risk characteristics.

Total primary mortgage insurance in force as of December 31, 2016 grew to $183.5 billion, compared to $181.2 billion as of September 30, 2016, and $175.6 billion as of December 31, 2015. -- The composition of Radian’s mortgage insurance portfolio has significantly improved over the past several years: -- 88 percent of primary mortgage insurance risk in force at December 31, 2016 consisted of new business written after 2008, including those loans that successfully completed the Home Affordable Refinance Program (HARP).

58 percent of primary mortgage insurance risk in force at December 31, 2016 consisted of loans with FICO scores greater than or equal to 740, compared to 26 percent of loans at December 31, 2007.

7 percent of primary mortgage insurance risk in force at December 31, 2016 consisted of loans with a loan-to-value (LTV) greater than 95 percent, compared to 24 percent of loans at December 31, 2007.

Persistency, which is the percentage of mortgage insurance in force that remains on the company’s books after a twelve-month period, was 76.7 percent as of December 31, 2016, compared to 78.4 percent as of September 30, 2016, and 78.8 percent as of December 31, 2015.

Annualized persistency for the three-months ended December 31, 2016 was 76.8 percent, compared to 75.3 percent for the three-months ended September 30, 2016, and 81.8 percent for the three-months ended December 31, 2015.

Total net premiums earned were $233.6 million for the quarter ended December 31, 2016, compared to $238.1 million for the quarter ended September 30, 2016, and $226.4 million for the quarter ended December 31, 2015. Notable variable items impacting net premiums earned include: -- Acceleration of premiums related to Single Premium Policy cancellations, which are net of reinsurance, were $15.7 million in the fourth quarter, compared to $18.4 million in the third quarter of 2016, and $13.5 million in the fourth quarter of 2015.

Ceded premiums of $18.2 million, $19.9 million and $13.0 million for the quarters ended December 31, 2016, September 30, 2016, and December 31, 2015, respectively, are net of accrued profit commission on reinsurance transactions of $8.5 million in the fourth quarter of 2016, compared to $8.9 million in the third quarter of 2016, and $1.6 million in the fourth quarter of 2015.

-- Additional details may be found in Exhibit D.

The mortgage insurance provision for losses was $54.7 million in the fourth quarter of 2016, compared to $56.2 million in the third quarter of 2016, and $56.8 million in the fourth quarter of 2015. -- The loss ratio in the fourth quarter of 2016 was 23.4 percent, compared to 23.6 percent in the third quarter of 2016 and 25.1 percent in the fourth quarter of 2015.

Mortgage insurance loss reserves were $760.3 million as of December 31, 2016, compared to $821.9 million as of September 30, 2016, and $976.4 million as of December 31, 2015.

Primary reserve per primary default (excluding IBNR and other reserves) was $22,503 as of December 31, 2016. This compares to primary reserve per primary default of $24,049 as of September 30, 2016, and $24,019 as of December 31, 2015.

The total number of primary delinquent loans decreased by 1 percent in the fourth quarter from the third quarter of 2016, and by 18 percent from the fourth quarter of 2015. The primary mortgage insurance delinquency rate decreased to 3.2 percent in the fourth quarter of 2016, compared to 3.3 percent in the third quarter of 2016, and 4.0 percent in the fourth quarter of 2015.

Total mortgage insurance net claims paid were $116.5 million in the fourth quarter, compared to $82.7 million in the third quarter, and $176.5 million in the fourth quarter of 2015. For the full-year 2016, total net claims paid were $417.6 million, compared to $764.7 million for the full-year 2015. -- Claims paid in the fourth quarter of 2016 were elevated due to increased efficiencies in the company’s claims processing, which resulted in an acceleration of paid claims and contributed to a 38 percent decline in the pending claim inventory from the third quarter of 2016.

Claims paid in 2015 included claims related to the September 2014 BofA Settlement Agreement.

Mortgage and Real Estate Services

The Services segment provides outsourced services, information-based analytics, residential loan due diligence, valuations, surveillance and specialty consulting for buyers and sellers of, and investors in, mortgage- and real estate-related loans and securities. These services and solutions are provided primarily through Clayton and its subsidiaries, including Green River Capital, Red Bell Real Estate and ValuAmerica.

Total revenues for the fourth quarter were $52.6 million, an increase of 10 percent compared to $48.0 million for the third quarter of 2016, and an increase of 33 percent compared to $39.5 million for the fourth quarter of 2015. Total revenues for the full year 2016 were $177.2 million, compared to $163.1 million for the same period of 2015.

The adjusted pretax operating loss for the quarter ended December 31, 2016, was $2.6 million, compared to $1.9 million for the quarter ended September 30, 2016, and $1.2 million for the quarter ended December 31, 2015. The adjusted pretax operating loss for the full year 2016 was $20.2 million, compared to $0.2 million for the prior year.

Services adjusted earnings before interest, income taxes, depreciation and amortization (Services adjusted EBITDA) for the quarter ended December 31, 2016, was $4.4 million, compared to $5.7 million for the quarter ended September 30, 2016, and $4.8 million for the quarter ended December 31, 2015. Additional details regarding the non-GAAP measure Services adjusted EBITDA may be found in Exhibits F and G.

Revenue and expenses for contract underwriting performed on behalf of third parties, formerly reflected in our Mortgage Insurance segment, is now reflected in the Services segment for all periods, based on changes to the company’s personnel reporting lines and management oversight of this function. As a result of this change, for all periods presented, Services revenue, direct cost of services and other operating expenses have increased, with offsetting reductions in Mortgage Insurance other income and other operating expenses. In the fourth quarter, this change increased the Services segment’s revenue, direct cost of services and other operating expenses by $3.8 million, $2.3 million and $1.0 million, respectively.

Consolidated Expenses

Other operating expenses were $62.4 million in the fourth quarter, compared to $62.1 million in the third quarter of 2016, and $58.6 million in the fourth quarter of last year.

Notable variable items impacting other operating expenses include: -- The company’s investment to significantly upgrade its technology systems, which represented $3.6 million in the fourth quarter, compared to $2.4 million in the third quarter of 2016, and $1.6 million in the fourth quarter of 2015.

Severance charges of $0.9 million in the fourth quarter, compared to $1.1 million in the third quarter, and $0.1 million in the fourth quarter of 2015. A significant portion of the severance charges in the fourth quarter of 2016 was related to the Services segment.

Total incentive compensation expense of $9.1 million in the fourth quarter, compared to $12.7 million in the third quarter of 2016, and $4.0 million in the fourth quarter of 2015. The expense in the fourth and third quarters of 2016 was impacted by an increase in accrued short-term incentive compensation based on year-to-date performance. The expense in the fourth quarter of 2015 was impacted by a decrease in accrued short-term incentive compensation based on performance in 2015.

-- Additional details may be found in Exhibit D.

Other operating expenses before corporate allocations for the fourth quarter of 2016 were comprised of $37.8 million for the Mortgage Insurance segment, compared to $35.9 million in the third quarter of 2016, and $37.2 million in the fourth quarter of last year.

Other operating expenses before corporate allocations for the fourth quarter of 2016 were comprised of $14.8 million for the Services segment, compared to $13.6 million in the third quarter of 2016, and $11.5 million in the fourth quarter of last year.

CAPITAL AND LIQUIDITY UPDATE

Radian Group maintained approximately $460 million of available liquidity as of December 31, 2016. The company successfully completed several capital actions in 2016, utilizing a portion of its liquidity to strengthen its financial position and improve its debt maturity profile, with the objective of better positioning Radian Group for a return to investment grade ratings in the future. This series of actions in 2016 included:

Completion of a $100 million share repurchase program of the company’s common stock, at an average price of $10.62 per share, and the approval of an additional share repurchase of up to $125 million

Entry into the Radian Guaranty Single Premium QSR transaction, improving the company’s expected return on required capital and effectively managing its PMIERs position in a cost-efficient manner

Radian Guaranty’s redemption of its $325 million surplus note due to Radian Group, which immediately resulted in a $325 million increase to Radian Group’s available liquidity

Early redemption of the remaining $196 million face value of its 9.00% Senior Notes due 2017

Negotiated purchases of aggregate principal amounts of approximately $30 million of the company’s outstanding 3.00% Convertible Senior Notes due 2017 and $322 million of the company’s outstanding 2.25% Convertible Senior Notes due 2019

Issuance of $350 million aggregate principal amount of 7.00% Senior Notes due 2021

The combination of these capital actions decreased the company’s total number of diluted shares by 23.3 million in 2016 and improved Radian Group’s debt maturity profile.

RECENT EVENTS

In the fourth quarter of 2016, Radian Group issued a notice of redemption of its remaining 2.25% Convertible Senior Notes due 2019, with settlement scheduled for January 27, 2017. The company has elected to settle in cash any conversions by the holders. When completed, this redemption will further reduce the company’s total number of diluted shares by approximately 6.4 million shares and will reduce holding company liquidity by $110 million.

"We both simplified and strengthened our capital structure in 2016, improving the maturity profile of our debt and significantly reducing our number of diluted shares outstanding," said Radian’s Chief Financial Officer Frank Hall. "We believe the success of our capital activities is an indication of the improved outlook for Radian and for our industry."

CONFERENCE CALL

Radian will discuss fourth quarter and year-end 2016 results in a conference call today, Thursday, January 26, 2017, at 10:00 a.m. Eastern time.

The conference call will be broadcast live over the Internet at http://www.radian.biz/page?name=Webcasts or at www.radian.biz. The call may also be accessed by dialing 800.230.1092 inside the U.S., or 612.234.9960 for international callers, using passcode 415619 or by referencing Radian.

A replay of the webcast will be available on the Radian website approximately two hours after the live broadcast ends for a period of one year. A replay of the conference call will be available approximately two and a half hours after the call ends for a period of two weeks, using the following dial-in numbers and passcode: 800.475.6701 inside the U.S., or 320.365.3844 for international callers, passcode 415619.

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). Adjusted pretax operating income adjusts GAAP pretax income to remove the effects of: (i) net gains (losses) on investments and other financial instruments; (ii) loss on induced conversion and debt extinguishment; (iii) acquisition-related expenses; (iv) amortization and impairment of intangible assets; and (v) net impairment losses recognized in earnings. Adjusted diluted net operating income per share represents a diluted net income per share calculation using as its basis adjusted pretax operating income, net of taxes at the company’s statutory tax rate for the period.

In addition to the above non-GAAP measures for the consolidated company, the company also presents as supplemental information a non-GAAP measure for the Services segment, representing earnings before interest, income taxes, depreciation and amortization (EBITDA). Services adjusted EBITDA is calculated by using the Services segment’s adjusted pretax operating income as described above, further adjusted to remove the impact of depreciation and corporate allocations for interest and operating expenses. Services adjusted EBITDA is presented to facilitate comparisons with other services companies, since it is a widely accepted measure of performance in the services industry.

See Exhibit F or Radian’s website for a description of these items, as well as Exhibit G for reconciliations to the most comparable consolidated GAAP measures.

ABOUT RADIAN

Radian Group Inc. (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:

Mortgage Insurance, through its principal mortgage insurance subsidiary Radian Guaranty Inc. This private mortgage insurance protects lenders from default-related losses, facilitates the sale of low-downpayment mortgages in the secondary market and enables homebuyers to purchase homes more quickly with downpayments less than 20%.

Mortgage and Real Estate Services, through its principal services subsidiary Clayton, as well as Green River Capital, Red Bell Real Estate and ValuAmerica. These solutions include information and services that financial institutions, investors and government entities use to evaluate, acquire, securitize, service and monitor loans and asset-backed securities.

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:
Net Premiums Earned - Insurance and Other Operating Expenses
Exhibit E:
Segment Information
Exhibit F:
Definition of Consolidated Non-GAAP Financial Measures
Exhibit G:
Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit H:
Mortgage Insurance Supplemental Information
New Insurance Written
Exhibit I:
Mortgage Insurance Supplemental Information
Primary Insurance in Force and Risk in Force
Exhibit J:
Mortgage Insurance Supplemental Information
Claims and Reserves
Exhibit K:
Mortgage Insurance Supplemental Information
Default Statistics
Exhibit L:
Mortgage Insurance Supplemental Information
Captives, QSR and Persistency
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations Trend Schedule (1)
Exhibit A (page 1 of 2)
2016
2015
(In thousands, except per share amounts)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Revenues:
Net premiums earned - insurance
$ 233,585
$ 238,149
$ 229,085
$ 220,950
$ 226,443
Services revenue
49,905
45,877
40,263
32,849
38,338
Net investment income
28,996
28,430
28,839
27,201
22,833
Net gains (losses) on investments and other financial instruments
(38,773 )
7,711
30,527
31,286
(13,402 )
Other income
736
716
1,454
666
670
Total revenues
274,449
320,883
330,168
312,952
274,882
Expenses:
Provision for losses
54,287
55,785
49,725
42,991
56,805
Policy acquisition costs
5,579
6,119
5,393
6,389
4,831
Direct cost of services
33,812
29,447
27,365
23,550
23,187
Other operating expenses
62,416
62,119
63,173
57,188
58,624
Interest expense
17,269
19,783
22,546
21,534
20,996
Loss on induced conversion and debt extinguishment
--
17,397
2,108
55,570
2,320
Amortization and impairment of intangible assets
3,290
3,292
3,311
3,328
3,409
Total expenses
176,653
193,942
173,621
210,550
170,172
Pretax income
97,796
126,941
156,547
102,402
104,710
Income tax provision
36,707
44,138
58,435
36,153
30,182
Net income
$
61,089
$
82,803
$
98,112
$
66,249
$
74,528
Diluted net income per share:
$
0.27
$
0.37
$
0.44
$
0.29
$
0.32
Selected Mortgage Insurance Key Ratios
Loss ratio (2)
23.4
%
23.6
%
21.9
%
19.6
%
25.1
%
Expense ratio (2)
22.7
%
22.7
%
23.6
%
21.8
%
22.6
%
(1)
For all periods presented, incorporates organizational changes
to align our segment reporting structure with recent changes in
personnel reporting lines and management oversight related to
contract underwriting performed on behalf of third parties.
Revenue and expenses for this business is now reflected in the
Services segment. As a result, for all periods presented, Services
revenue and direct cost of services have increased, with
offsetting reductions in Mortgage Insurance other income and other
operating expenses.
(2)
Calculated on a GAAP basis using net premiums earned.
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Operations (1)
Exhibit A (page 2 of 2)
Year Ended
December 31,
(In thousands, except per-share data)
2016
2015
Revenues:
Net premiums earned - insurance
$ 921,769
$ 915,908
Services revenue
168,894
157,216
Net investment income
113,466
81,537
Net gains (losses) on investments and other financial instruments
30,751
35,693
Other income
3,572
2,899
Total revenues
1,238,452
1,193,253
Expenses:
Provision for losses
202,788
198,585
Policy acquisition costs
23,480
22,424
Direct cost of services
114,174
93,715
Other operating expenses
244,896
242,405
Interest expense
81,132
91,102
Loss on induced conversion and debt extinguishment
75,075
94,207
Amortization and impairment of intangible assets
13,221
12,986
Total expenses
754,766
755,424
Pretax income from continuing operations
483,686
437,829
Income tax provision
175,433
156,290
Net income from continuing operations
308,253
281,539
Income (loss) from discontinued operations, net of tax
--
5,385
Net income
$ 308,253
$ 286,924
Diluted net income per share:
Net income from continuing operations
$
1.37
$
1.20
Income (loss) from discontinued operations, net of tax
--
0.02
Net income
$
1.37
$
1.22
Selected Mortgage Insurance Key Ratios
Loss ratio (2)
22.2
%
21.7
%
Expense ratio (2)
22.7
%
23.7
%
(1)
For all periods presented, incorporates organizational changes
to align our segment reporting structure with recent changes in
personnel reporting lines and management oversight related to
contract underwriting performed on behalf of third parties.
Revenue and expenses for this business is now reflected in the
Services segment. As a result, for all periods presented, Services
revenue and direct cost of services have increased, with
offsetting reductions in Mortgage Insurance other income and other
operating expenses.
(2)
Calculated on a GAAP basis using net premiums earned.
Radian Group Inc. and Subsidiaries
Net Income Per Share Trend Schedule
Exhibit B (page 1 of 2)
The calculation of basic and diluted net income per share was
as follows:
2016
2015
(In thousands, except per share amounts)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Net income:
Net income--basic
$ 61,089
$ 82,803
$ 98,112
$
66,249
$
74,528
Adjustment for dilutive Convertible Senior Notes due 2019, net of
665
848
913
3,390
3,664
tax (1)
Net income--diluted
$ 61,754
$ 83,651
$ 99,025
$
69,639
$
78,192
Average common shares outstanding--basic
214,481
214,387
214,274
203,706
206,872
Dilutive effect of Convertible Senior Notes due 2017 (2)
421
178
12
--
1,057
Dilutive effect of Convertible Senior Notes due 2019
6,417
8,274
8,928
33,583
37,736
Dilutive effect of stock-based compensation arrangements (2)
3,457
3,129
2,989
2,418
2,316
Adjusted average common shares outstanding--diluted
224,776
225,968
226,203
239,707
247,981
Basic net income per share:
$
0.28
$
0.39
$
0.46
$
0.33
$
0.36
Diluted net income per share:
$
0.27
$
0.37
$
0.44
$
0.29
$
0.32
(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 and
convertible debt were not included in the calculation of diluted
net income per share because they were anti-dilutive:
2016
2015
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Shares of Convertible Senior Notes due 2017
--
--
--
1,902
--
Shares of common stock equivalents
1,042
1,045
1,042
709
728
Radian Group Inc. and Subsidiaries
Net Income Per Share
Exhibit B (page 2 of 2)
Year Ended
December 31,
(In thousands, except per share amounts)
2016
2015
Net income from continuing operations:
Net income from continuing operations - basic
$ 308,253
$
281,539
Adjustment for dilutive Convertible Senior Notes due 2019, net of
5,816
14,758
tax (1)
Net income from continuing operations - diluted
$ 314,069
$
296,297
Net income:
Net income from continuing operations - basic
$ 308,253
$
281,539
Income (loss) from discontinued operations, net of tax
--
5,385
Net income - basic
308,253
286,924
Adjustment for dilutive Convertible Senior Notes due 2019, net of
5,816
14,758
tax (1)
Net income - diluted
$ 314,069
$
301,682
Average common shares outstanding--basic
211,789
199,910
Dilutive effect of Convertible Senior Notes due 2017 (2)
207
6,293
Dilutive effect of Convertible Senior Notes due 2019
14,263
37,736
Dilutive effect of stock-based compensation arrangements (2)
2,999
2,393
Adjusted average common shares outstanding--diluted
229,258
246,332
Net income (loss) per share:
Basic:
Net income from continuing operations
$
1.46
$
1.41
Income (loss) from discontinued operations, net of tax
--
0.03
Net income
$
1.46
$
1.44
Diluted:
Net income from continuing operations
$
1.37
$
1.20
Income (loss) from discontinued operations, net of tax
--
0.02
Net income
$
1.37
$
1.22
(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:
Year Ended
December 31,
(In thousands)
2016
2015
Shares of common stock equivalents
1,042
728
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 data)
2016
2016
2016
2016
2015
Assets:
Investments
$ 4,462,430
$ 4,565,748
$ 4,636,914
$ 4,470,172
$ 4,298,686
Cash
52,149
46,356
55,062
64,844
46,898
Restricted cash
9,665
10,312
9,298
10,060
13,000
Accounts and notes receivable
77,631
94,692
77,170
66,340
61,734
Deferred income taxes, net
411,798
401,442
444,513
518,059
577,945
Goodwill and other intangible assets, net
276,228
279,400
282,703
286,069
289,417
Prepaid reinsurance premium
229,438
229,754
229,231
228,718
40,491
Other assets
343,835
422,123
332,372
325,129
313,929
Total assets
$ 5,863,174
$ 6,049,827
$ 6,067,263
$ 5,969,391
$ 5,642,100
Liabilities and stockholders’ equity:
Unearned premiums
$
681,222
$
680,973
$
677,599
$
673,887
$
680,300
Reserve for losses and loss adjustment expense
760,269
821,934
848,379
891,348
976,399
Long-term debt
1,069,537
1,067,666
1,278,051
1,286,466
1,219,454
Reinsurance funds withheld
158,001
177,147
163,360
151,104
--
Other liabilities
321,859
413,401
294,507
306,188
269,016
Total liabilities
2,990,888
3,161,121
3,261,896
3,308,993
3,145,169
Common stock
232
232
232
232
224
Treasury stock
(893,332 )
(893,197 )
(893,176 )
(893,176 )
(893,176 )
Additional paid-in capital
2,779,891
2,778,860
2,781,136
2,773,349
2,716,618
Retained earnings
997,890
937,338
855,070
757,202
691,742
Accumulated other comprehensive income (loss)
(12,395 )
65,473
62,105
22,791
(18,477 )
Total stockholders’ equity
2,872,286
2,888,706
2,805,367
2,660,398
2,496,931
Total liabilities and stockholders’ equity
$ 5,863,174
$ 6,049,827
$ 6,067,263
$ 5,969,391
$ 5,642,100
Shares outstanding
214,521
214,405
214,284
214,265
206,872
Book value per share
$
13.39
$
13.47
$
13.09
$
12.42
$
12.07
Statutory Capital Ratios
Risk to capital ratio-Radian Guaranty only
13.5
:1
(1)
13.7
:1
14.0
:1
12.5
:1
14.3
:1
Risk to capital ratio-Mortgage Insurance combined
13.6
:1
(1)
13.9
:1
14.2
:1
12.9
:1
14.6
:1
(1) Preliminary.
Radian Group Inc. and Subsidiaries
Net Premiums Earned - Insurance and Other Operating Expenses
Exhibit D (page 1 of 2)
2016
2015
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Premiums earned - insurance:
Direct
$ 251,751
$ 258,074
$ 248,938
$ 240,330
$ 239,424
Assumed
8
9
9
9
10
Ceded
(18,174 )
(19,934 )
(19,862 )
(19,389 )
(12,991 )
Net premiums earned - insurance
$ 233,585
$ 238,149
$ 229,085
$ 220,950
$ 226,443
Notable variable items: (1)
Single Premium Policy cancellations, net of reinsurance
$
15,702
$
18,448
$
14,841
$
9,783
$
13,520
Profit commission - reinsurance (2)
8,458
8,922
7,891
6,134
1,559
Total
$
24,160
$
27,370
$
22,732
$
15,917
$
15,079
Other operating expenses (3)
$
62,416
$
62,119
$
63,173
$
57,188
$
58,624
Notable variable items: (4)
Technology upgrade project (5)
$
3,648
$
2,440
$
2,443
$
2,271
$
1,558
Severance costs
888
1,137
277
3,040
116
Incentive compensation (6) (7)
9,072
12,652
14,183
6,235
4,013
Ceding commissions (8)
(5,105 )
(5,460 )
(5,006 )
(4,413 )
(1,229 )
Total
$
8,503
$
10,769
$
11,897
$
7,133
$
4,458
(1)
Affecting net premiums earned-insurance.
(2)
For 2016, the amounts represent the profit commission on the
Single Premium QSR Transaction. For 2015, the amount represents an
accrual for the profit commission on the Second QSR Transaction.
(3)
For all periods presented, incorporates organizational changes
to align our segment reporting structure with recent changes in
personnel reporting lines and management oversight related to
contract underwriting performed on behalf of third parties.
Revenue and expenses for this business is now reflected in the
Services segment. As a result, for all periods presented, Services
revenue and direct cost of services have increased, with
offsetting reductions in Mortgage Insurance other income and other
operating expenses.
(4)
Affecting other operating expenses.
(5)
Represents the expense impact of certain costs incurred in our
initiative to significantly upgrade our technology systems.
(6)
The expense relates to short- and long-term incentive
compensation programs. For our equity-settled long-term incentive
awards the annual grants for 2016 were made in the second quarter
of 2016. Therefore, expense in the second quarter of 2016 was
elevated, primarily due to the required acceleration of expense
recognition for retirement-eligible employees, who are considered
effectively vested immediately in grants that would otherwise vest
over a period of 3 or 4 years. The expense in the third and fourth
quarter of 2016 remained elevated, primarily due to adjustments to
accrued short-term incentives based on year-to-date performance.
(7)
Incentive compensation expense is shown net of deferred policy
acquisition costs.
(8)
Ceding commissions are shown net of deferred policy acquisition
costs.
Radian Group Inc. and Subsidiaries
Net Premiums Earned - Insurance and Other Operating Expenses
Exhibit D (page 2 of 2)
Year Ended
December 31,
(In thousands)
2016
2015
Premiums earned - insurance:
Direct
$ 999,093
$ 973,645
Assumed
35
43
Ceded
(77,359 )
(57,780 )
$ 921,769
$ 915,908
Net premiums earned - insurance
Notable variable items: (1)
Single Premium Policy cancellations, net of reinsurance
$
58,774
$
68,267
Profit commission - reinsurance (2)
31,405
7,993
Total
$
90,179
$
76,260
Other operating expenses (3)
$ 244,896
$ 242,405
Notable variable items: (4)
Technology upgrade project (5)
$
10,802
$
7,108
Severance costs
5,342
1,517
Incentive compensation (6) (7)
42,142
40,186
Ceding commissions (8)
(19,984 )
(5,482 )
Total
$
38,302
$
43,329
(1)
Affecting net premiums earned-insurance.
(2)
For 2016, the amounts represent the profit commission on the
Single Premium QSR Transaction. For 2015, the amount represents an
accrual for the profit commission on the Second QSR Transaction.
(3)
For all periods presented, incorporates organizational changes
to align our segment reporting structure with recent changes in
personnel reporting lines and management oversight related to
contract underwriting performed on behalf of third parties.
Revenue and expenses for this business is now reflected in the
Services segment. As a result, for all periods presented, Services
revenue and direct cost of services have increased, with
offsetting reductions in Mortgage Insurance other income and other
operating expenses.
(4)
Affecting other operating expenses.
(5)
Represents the expense impact of certain costs incurred in our
initiative to significantly upgrade our technology systems.
(6)
The expense relates to short- and long-term incentive
compensation programs.
(7)
Incentive compensation expense is shown net of deferred policy
acquisition costs.
(8)
Ceding commissions are shown net of deferred policy acquisition
costs.
Radian Group Inc. and Subsidiaries
Segment Information
Exhibit E (page 1 of 3)
Summarized financial information concerning our operating segments
as of and for the periods indicated is as follows. For a definition
of adjusted pretax operating income and Services adjusted EBITDA,
along with reconciliations to consolidated GAAP measures, see
Exhibits F and G.
Mortgage Insurance (1)
2016
2015
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Net premiums written - insurance
$ 234,172
$ 240,999
$ 232,353
$
26,310
(2)
$ 233,347
Decrease (increase) in unearned premiums
(587 )
(2,850 )
(3,268 )
194,640
(6,904 )
Net premiums earned - insurance
233,585
238,149
229,085
220,950
226,443
Net investment income
28,996
28,430
28,839
27,201
22,833
Other income
736
716
1,454
666
670
Total
263,317
267,295
259,378
248,817
249,946
Provision for losses
54,675
56,151
50,074
43,275
56,817
Policy acquisition costs
5,579
6,119
5,393
6,389
4,831
Other operating expenses before corporate allocations
37,773
35,940
34,365
32,546
37,156
Total (3)
98,027
98,210
89,832
82,210
98,804
Adjusted pretax operating income before corporate allocations
165,290
169,085
169,546
166,607
151,142
Allocation of corporate operating expenses
9,652
11,911
14,286
9,329
9,251
Allocation of interest expense
12,843
15,360
18,124
17,112
16,582
Adjusted pretax operating income
$ 142,795
$ 141,814
$ 137,136
$ 140,166
$ 125,309
Services (1)
2016
2015
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Services revenue (3)
$
52,558
$
48,033
$
42,210
$
34,448
$
39,498
Direct cost of services
34,130
29,655
27,730
23,854
23,826
Other operating expenses before corporate allocations
14,842
13,575
13,030
14,368
11,492
Total
48,972
43,230
40,760
38,222
35,318
Adjusted pretax operating income (loss) before corporate
3,586
4,803
1,450
(3,774 )
4,180
allocations (4)
Allocation of corporate operating expenses
1,738
2,265
2,779
1,751
968
Allocation of interest expense
4,426
4,423
4,422
4,422
4,414
Adjusted pretax operating income (loss)
$
(2,578 )
$
(1,885 )
$
(5,751 )
$
(9,947 )
$
(1,202 )
(1)
For all periods presented, incorporates organizational changes
to align our segment reporting structure with recent changes in
personnel reporting lines and management oversight related to
contract underwriting performed on behalf of third parties.
Revenue and expenses for this business is now reflected in the
Services segment. As a result, for all periods presented, Services
revenue, direct cost of services and other operating expenses have
increased, with offsetting reductions in Mortgage Insurance other
income and other operating expenses.
(2)
Net of ceded premiums written under the Single Premium QSR
transaction of $197.6 million.
(3)
Inter-segment information:
2016
2015
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Inter-segment expense included in Mortgage Insurance segment
$ 2,653
$ 2,156
$ 1,947
$ 1,599
$
1,160
Inter-segment revenue included in Services segment
2,653
2,156
1,947
1,599
1,160
Radian Group Inc. and Subsidiaries
Segment Information
Exhibit E (page 2 of 3)
(4)
Supplemental information for Services adjusted EBITDA (see
definition in Exhibit F):
2016
2015
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Adjusted pretax operating income before corporate allocations
$
3,586
$
4,803
$ 1,450
$ (3,774 )
$
4,180
Depreciation and amortization
829
884
749
663
612
Services EBITDA
$
4,415
$
5,687
$ 2,199
$ (3,111 )
$
4,792
Mortgage Insurance (1)
Year Ended
December 31,
(In thousands)
2016
2015
Net premiums written - insurance
$
733,834
(2)
$
968,505
Decrease (increase) in unearned premiums
187,935
(52,597 )
Net premiums earned - insurance
921,769
915,908
Net investment income (3)
113,466
81,537
Other income (3)
3,572
2,899
Total
1,038,807
1,000,344
Provision for losses
204,175
198,433
Policy acquisition costs
23,480
22,424
Other operating expenses before corporate allocations
140,624
148,619
Total (4)
368,279
369,476
Adjusted pretax operating income before corporate allocations
670,528
630,868
Allocation of corporate operating expenses (3)
45,178
46,418
Allocation of interest expense (3)
63,439
73,402
Adjusted pretax operating income
$
561,911
$
511,048
Services (1)
Year Ended
December 31,
(In thousands)
2016
2015
Services revenue (4)
$
177,249
$
163,140
Direct cost of services
115,369
97,256
Other operating expenses before corporate allocations
55,815
43,515
Total
171,184
140,771
Adjusted pretax operating income (loss) before corporate
6,065
22,369
allocations (5)
Allocation of corporate operating expenses
8,533
4,823
Allocation of interest expense
17,693
17,700
Adjusted pretax operating income (loss)
$
(20,161 )
$
(154 )
(1)
For all periods presented, incorporates organizational changes
to align our segment reporting structure with recent changes in
personnel reporting lines and management oversight related to
contract underwriting performed on behalf of third parties.
Revenue and expenses for this business is now reflected in the
Services segment. As a result, for all periods presented, Services
revenue, direct cost of services and other operating expenses have
increased, with offsetting reductions in Mortgage Insurance other
income and other operating expenses.
Radian Group Inc. and Subsidiaries
Segment Information
Exhibit E (page 3 of 3)
(2)
Net of ceded premiums written under the Single Premium QSR
transaction of $197.6 million.
(3)
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.
(4)
Inter-segment information:
Year Ended
December 31,
2016
2015
Inter-segment expense included in Mortgage Insurance segment
$
8,355
$
5,924
Inter-segment revenue included in Services segment
8,355
5,924
(5)
Supplemental information for Services adjusted EBITDA (see
definition in Exhibit F)
Year Ended
December 31,
2016
2015
Adjusted pretax operating income before corporate allocations
$
6,065
$
22,369
Depreciation and amortization
3,125
2,098
Services EBITDA
$
9,190
$
24,467
Selected balance sheet information for our segments, as of the
periods indicated, is a follows:
At December 31, 2016
(In thousands)
Mortgage
Services
Total
Insurance
Total assets
$ 5,506,338
$ 356,836
$
5,863,174
At December 31, 2015
(In thousands)
Mortgage
Services
Total
Insurance
Total assets
$ 5,290,422
$ 351,678
$
5,642,100
Radian Group Inc. and Subsidiaries
Definition of Consolidated Non-GAAP Financial Measures
Exhibit F (page 1 of 2)
Use of Non-GAAP Financial Measures
In addition to the traditional GAAP financial measures, we have
presented "adjusted pretax operating income" and "adjusted diluted
net operating income per share," non-GAAP financial measures for the
consolidated company, among our key performance indicators to
evaluate our fundamental financial performance. These non-GAAP
financial measures align with the way the Company’s business
performance is evaluated by both management and the board of
directors. These measures have been established in order to increase
transparency for the purposes of evaluating our operating trends and
enabling more meaningful comparisons with our peers. Although on a
consolidated basis "adjusted pretax operating income" and "adjusted
diluted net operating income per share" are non-GAAP financial
measures, we believe these measures aid in understanding the
underlying performance of our operations. Our senior management,
including our Chief Executive Officer (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 is defined as GAAP consolidated
pretax income 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 per share is calculated by
dividing (i) adjusted pretax operating income attributable to common
shareholders, net of taxes computed using the company’s statutory
tax rate, by (ii) the sum of the weighted average number of common
shares outstanding and all dilutive potential common shares
outstanding. Interest expense on convertible debt, share dilution
from convertible debt and the impact of 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 consolidated pretax income (loss)
from continuing operations. These adjustments, along with the
reasons for their treatment, are described below.
(1)
Net gains (losses) on investments and other financial
instruments. The recognition of realized investment gains or
losses can vary significantly across periods as the activity is
highly discretionary based on the timing of individual securities
sales due to such factors as market opportunities, our tax and
capital profile and overall market cycles. Unrealized investment
gains and losses arise primarily from changes in the market value
of our investments that are classified as trading. These valuation
adjustments may not necessarily result in economic gains or losses.
Trends in the profitability of our fundamental operating activities
can be more clearly identified without the fluctuations of these
realized and unrealized gains or losses. We do not view them to be
indicative of our fundamental operating activities. Therefore, these
items are excluded from our calculation of adjusted pretax operating
income (loss). However, we include the change in expected economic
loss or recovery associated with our consolidated VIEs, if any, in
the calculation of adjusted pretax operating income (loss).
(2)
Loss on induced conversion and debt extinguishment. Gains
or losses on early extinguishment of debt and losses incurred to
purchase our convertible debt prior to maturity are discretionary
activities that are undertaken in order to take advantage of
market opportunities to strengthen our financial and capital
positions; therefore, we do not view these activities as part of
our operating performance. Such transactions do not reflect
expected future operations and do not provide meaningful insight
regarding our current or past operating trends. Therefore, these
items are excluded from our calculation of adjusted pretax
operating income (loss).
(3)
Acquisition-related expenses. Acquisition-related expenses
represent the costs incurred to effect an acquisition of a
business (i.e., a business combination). Because we pursue
acquisitions on a strategic and selective basis and not in the
ordinary course of our business, we do not view
acquisition-related expenses as a consequence of a primary
business activity. Therefore, we do not consider these expenses to
be part of our operating performance and they are excluded from
our calculation of adjusted pretax operating income (loss).
(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).
Radian Group Inc. and Subsidiaries
Definition of Consolidated Non-GAAP Financial Measures
Exhibit F (page 2 of 2)
(5)
Net impairment losses recognized in earnings. The
recognition of net impairment losses on investments can vary
significantly in both size and timing, depending on market credit
cycles. We do not view these impairment losses to be indicative of
our fundamental operating activities. Therefore, whenever these
losses occur, we exclude them from our calculation of adjusted
pretax operating income (loss).
In addition to the above non-GAAP measures for the consolidated
company, we also have presented as supplemental information a
non-GAAP measure for our Services segment, representing a measure of
earnings before interest, income taxes, depreciation and
amortization ("EBITDA"). We calculate Services adjusted EBITDA by
using adjusted pretax operating income as described above, further
adjusted to remove the impact of depreciation and corporate
allocations for interest and operating expenses. We have presented
Services adjusted EBITDA to facilitate comparisons with other
services companies, since it is a widely accepted measure of
performance in the services industry.
See Exhibit G for the reconciliation of the most comparable GAAP
measures, consolidated pretax income from continuing operations and
diluted net income per share from continuing operations, to our
non-GAAP financial measures for the consolidated company, adjusted
pretax operating income and adjusted diluted net operating income
per share, respectively. Exhibit G also contains the reconciliation
of the most comparable GAAP measure, net income, to Services
adjusted EBITDA.
Total adjusted pretax operating income, adjusted diluted net
operating income per share and Services adjusted EBITDA are not
measures of total profitability, and therefore should not be viewed
as substitutes for GAAP pretax income, diluted net income per share
or net income. Our definitions of adjusted pretax operating income,
adjusted diluted net operating income per share or Services adjusted
EBITDA may not be comparable to similarly-named measures reported by
other companies.
Radian Group Inc. and Subsidiaries
Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit G (page 1 of 4)
Reconciliation of Consolidated Pretax Income to Adjusted Pretax
Operating Income
2016
2015
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Consolidated pretax income
$
97,796
$ 126,941
$ 156,547
$ 102,402
$ 104,710
Less income (expense) items:
Net gains (losses) on investments and other financial instruments
(38,773 )
7,711
30,527
31,286
(13,402 )
Loss on induced conversion and debt extinguishment
--
(17,397 )
(2,108 )
(55,570 )
(2,320 )
Acquisition-related expenses (1)
(358 )
(10 )
54
(205 )
(266 )
Amortization and impairment of intangible assets
(3,290 )
(3,292 )
(3,311 )
(3,328 )
(3,409 )
Total adjusted pretax operating income (2)
$
140,217
$ 139,929
$ 131,385
$ 130,219
$ 124,107
(1) Please see Exhibit F for the definition of this line item.
(2) Total adjusted pretax operating income consists of adjusted
pretax operating income for each segment as follows:
2016
2015
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
(In thousands)
Adjusted pretax operating income (loss):
Mortgage Insurance
$
142,795
$ 141,814
$ 137,136
$ 140,166
$ 125,309
Services
(2,578 )
(1,885 )
(5,751 )
(9,947 )
(1,202 )
Total adjusted pretax operating income
$
140,217
$ 139,929
$ 131,385
$ 130,219
$ 124,107
Radian Group Inc. and Subsidiaries
Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit G (page 2 of 4)
Reconciliation of Diluted Net Income Per Share to Adjusted
Diluted Net Operating Income Per Share
2016
2015
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Diluted net income per share
$
0.27
$
0.37
$
0.44
$
0.29
$
0.32
Less per-share impact of debt items:
Loss on induced conversion and debt extinguishment
--
(0.08 )
(0.01 )
(0.23 )
(0.01 )
Income tax provision (benefit) (1)
--
(0.03 )
--
(0.03 )
(0.04 )
Per-share impact of debt items
--
(0.05 )
(0.01 )
(0.20 )
0.03
Less per-share impact of other income (expense) items:
Net gains (losses) on investments and other financial instruments
(0.17 )
0.03
0.13
0.13
(0.05 )
Acquisition-related expenses
--
--
--
--
--
Amortization and impairment of intangible assets
(0.02 )
(0.01 )
(0.01 )
(0.01 )
(0.01 )
Income tax provision (benefit) on other income (expense) items (2)
(0.07 )
0.01
0.04
0.04
(0.02 )
Difference between statutory and effective tax rate
(0.02 )
--
(0.01 )
0.04
(0.01 )
Per-share impact of other income (expense) items
(0.14 )
0.01
0.07
0.12
(0.05 )
Adjusted diluted net operating income per share (2)
$
0.41
$
0.41
$
0.38
$
0.37
$
0.34
(1)
A portion of the loss on induced conversion and debt
extinguishment is non-deductible for tax purposes. The income tax
benefit is based on the tax deductible loss using the company’s
federal statutory tax rate.
(2)
Calculated using the company’s federal statutory tax rate. Any
permanent tax adjustments and state income taxes on these items
have been deemed immaterial and are not included.
Reconciliation of Consolidated Pretax Income from Continuing
Operations to Adjusted Pretax Operating Income
Year Ended
December 31,
2016
2015
(In thousands)
Consolidated pretax income from continuing operations
$ 483,686
$ 437,829
Less income (expense) items:
Net gains on investments and other financial instruments
30,751
35,693
Loss on induced conversion and debt extinguishment
(75,075 )
(94,207 )
Acquisition-related expenses (1)
(519 )
(1,565 )
Amortization and impairment of intangible assets
(13,221 )
(12,986 )
Total adjusted pretax operating income (2)
$ 541,750
$ 510,894
(1)
Please see Exhibit F for the definition of this line item.
(2)
Total adjusted pretax operating income consists of adjusted
pretax operating income for each segment as follows:
Year Ended
December 31,
(In thousands)
2016
2015
Adjusted pretax operating income (loss):
Mortgage Insurance *
$ 561,911
$ 511,048
Services
(20,161 )
(154 )
Total adjusted pretax operating income
$ 541,750
$ 510,894
*
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.
Radian Group Inc. and Subsidiaries
Consolidated Non-GAAP Financial Measure Reconciliations
Exhibit G (page 3 of 4)
Reconciliation of Diluted Net Income Per Share from Continuing
Operations to Adjusted Diluted Net Operating Income Per Share
Year Ended
December 31,
2016
2015
Diluted net income per share from continuing operations
$
1.37
$
1.20
Less per-share impact of debt items:
Loss on induced conversion and debt extinguishment
(0.33 )
(0.38 )
Income tax provision (benefit) (1)
(0.07 )
(0.13 )
Per-share impact of debt items
(0.26 )
(0.25 )
Less per-share impact of other income (expense) items:
Net gains (losses) on investments and other financial instruments
0.14
0.14
Acquisition-related expenses
--
(0.01 )
Amortization and impairment of intangible assets
(0.06 )
(0.05 )
Income tax provision (benefit) on other income (expense) items (2)
0.03
0.03
Difference between statutory and effective tax rate
0.02
--
Per-share impact of other income (expense) items
0.07
0.05
Adjusted diluted net operating income per share (2)
$
1.56
$
1.40
(1)
A portion of the loss on induced conversion and debt
extinguishment is non-deductible for tax purposes. The income tax
benefit is based on the tax deductible loss using the company’s
federal statutory tax rate.
(2)
Calculated using the company’s federal statutory tax rate. 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 4 of 4)
Reconciliation of Net Income to Services Adjusted EBITDA
2016
2015
(In thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Net income
$
61,089
$ 82,803
$ 98,112
$ 66,249
$ 74,528
Less income (expense) items:
Net gains (losses) on investments and other financial instruments
(38,773 )
7,711
30,527
31,286
(13,402 )
Loss on induced conversion and debt extinguishment
--
(17,397 )
(2,108 )
(55,570 )
(2,320 )
Acquisition-related expenses
(358 )
(10 )
54
(205 )
(266 )
Amortization and impairment of intangible assets
(3,290 )
(3,292 )
(3,311 )
(3,328 )
(3,409 )
Income tax provision
36,707
44,138
58,435
36,153
30,182
Mortgage Insurance adjusted pretax operating income
142,795
141,814
137,136
140,166
125,309
Services adjusted pretax operating income (loss)
(2,578 )
(1,885 )
(5,751 )
(9,947 )
(1,202 )
Less income (expense) items:
Allocation of corporate operating expenses to Services
(1,738 )
(2,265 )
(2,779 )
(1,751 )
(968 )
Allocation of corporate interest expenses to Services
(4,426 )
(4,423 )
(4,422 )
(4,422 )
(4,414 )
Services depreciation and amortization
(829 )
(884 )
(749 )
(663 )
(612 )
Services adjusted EBITDA
$
4,415
$
5,687
$
2,199
$ (3,111 )
$
4,792
On a consolidated basis, "adjusted pretax operating income" and
"adjusted diluted net operating income per share" are measures not
determined in accordance with GAAP. "Services adjusted EBITDA" is
also a non-GAAP measure. These measures are not representative of
total profitability, and therefore should not be viewed as
substitutes for GAAP pretax income or diluted net income per share.
Our definitions of adjusted pretax operating income, adjusted
diluted net operating income per share or Services adjusted EBITDA
may not be comparable to similarly-named measures reported by other
companies. See Exhibit F for additional information on our
consolidated non-GAAP financial measures.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - New Insurance
Written
Exhibit H
2016
2015
($ in millions)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Total primary new insurance written
$ 13,882
$ 15,656
$ 12,921
$ 8,071
$
9,099
Percentage of primary new insurance
written by FICO score
>=740</b>
63.4 %
64.2 %
60.9 %
58.4 %
60.3 %
680-739
31.4
30.4
32.2
33.7
32.2
620-679
5.2
5.4
6.9
7.9
7.5
Total Primary
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
Percentage of primary new insurance
written
Monthly and other premiums
73 %
73 %
74 %
71 %
71 %
Single premiums
27 %
27 %
26 %
29 %
29 %
Net single premiums (1)
17 %
17 %
17 %
19 %
29 %
Refinances
27 %
22 %
18 %
19 %
17 %
LTV
95.01% and above
7.4 %
6.0 %
4.8 %
3.7 %
3.6 %
90.01% to 95.00%
43.6 %
47.1 %
50.2 %
50.5 %
49.5 %
85.01% to 90.00%
32.3 %
31.4 %
31.8 %
33.1 %
34.4 %
85.00% and below
16.7 %
15.5 %
13.2 %
12.7 %
12.5 %
(1)
In 2016, represents the percentage of direct single premiums
written, after consideration of the 35% single premium NIW ceded
under the Single Premium QSR Transaction.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Primary Insurance
in Force and Risk in Force
Exhibit I
December 31,
September 30,
June 30,
March 31,
December 31,
($ in millions)
2016
2016
2016
2016
2015
Primary insurance in force (1)
Prime
$ 174,927
$ 172,178
$ 168,259
$ 165,526
$ 165,291
Alt-A
5,064
5,363
5,627
5,907
6,176
A minus and below
3,459
3,624
3,786
3,953
4,117
Total Primary
$ 183,450
$ 181,165
$ 177,672
$ 175,386
$ 175,584
Primary risk in force (1) (2)
Prime
$
44,708
$
44,075
$
43,076
$
42,312
$
42,170
Alt-A
1,168
1,241
1,302
1,366
1,427
A minus and below
865
906
946
988
1,030
Total Primary
$
46,741
$
46,222
$
45,324
$
44,666
$
44,627
Percentage of primary risk in force
Direct monthly and other premiums
69 %
69 %
69 %
69 %
69 %
Direct single premiums
31 %
31 %
31 %
31 %
31 %
Net single premiums (3)
25 %
25 %
25 %
25 %
30 %
Percentage of primary risk in force by
FICO score
>=740</b>
57.6 %
57.4 %
57.1 %
57.0 %
57.1 %
680-739
31.0
30.9
30.8
30.6
30.3
620-679
9.9
10.2
10.5
10.7
10.8
<=619
1.5
1.5
1.6
1.7
1.8
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 %
7.2 %
7.1 %
7.2 %
7.3 %
90.01% to 95.00%
52.3
52.1
51.6
50.9
50.4
85.01% to 90.00%
32.5
32.8
33.3
33.7
34.0
85.00% and below
7.8
7.9
8.0
8.2
8.3
Total
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
Percentage of primary risk in force by
policy year
2005 and prior
4.8 %
5.1 %
5.5 %
6.0 %
6.3 %
2.9
3.1
3.4
3.6
3.7
2006
7.0
7.4
7.9
8.4
8.7
2007
4.8
5.2
5.6
6.0
6.3
2008
1.0
1.2
1.3
1.5
1.7
2009
0.9
1.0
1.2
1.3
1.4
2010
2.0
2.2
2.5
2.7
2.9
2011
8.0
8.8
9.7
10.6
11.2
2012
12.6
13.9
15.5
17.0
18.1
2013
12.0
13.4
14.9
16.3
17.1
2014
18.1
19.4
21.0
22.0
22.6
2015
25.9
19.3
11.5
4.6
--
2016
Total
100.0 %
100.0 %
100.0 %
100.0 %
100.0 %
Primary risk in force on defaulted loans (4)
$
1,363
$
1,381
$
1,398
$
1,562
$
1,625
(1)
Includes amounts ceded under our reinsurance agreements, as
well as amounts related to the Freddie Mac Agreement.
(2)
Does not include pool risk in force or other risk in force,
which combined represent less than 3.0% of our total risk in force
for all periods presented.
(3)
Represents the percentage of Single Premium RIF, after giving
effect to all reinsurance ceded.
(4)
Excludes risk related to loans subject to the Freddie Mac
Agreement.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Claims and
Reserves
Exhibit J
2016
2015
($ in thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Net claims paid: (1)
Prime
$
70,151
$
51,964
$
56,036
$
74,432
$
56,900
Alt-A
27,558
16,334
18,349
28,929
21,343
A minus and below
13,760
9,615
12,315
13,196
11,530
Total primary claims paid
111,469
77,913
86,700
116,557
89,773
Pool
4,788
4,492
5,451
7,389
6,477
Second-lien and other
(264 )
(234 )
(231 )
345
(143 )
Subtotal
115,993
82,171
91,920
124,291
96,107
Impact of captive terminations
492
(171 )
(2,619 )
(120 )
(65 )
Impact of settlements (2)
--
705
1,400
3,500
80,426
Total net claims paid
$ 116,485
$
82,705
$
90,701
$ 127,671
$ 176,468
Average net claims paid (3)
Prime
$
45.5
$
48.3
$
48.6
$
47.7
$
46.9
Alt-A
65.5
65.3
63.5
63.0
61.7
A minus and below
37.7
41.3
39.9
36.8
40.6
Total average net primary claims paid
47.9
50.0
49.5
49.0
48.7
Pool
45.6
51.0
58.0
53.2
56.3
Total average net claims paid
$
47.6
$
49.7
$
49.6
$
48.9
$
48.9
Average direct primary claims paid (3) (4)
$
48.2
$
50.3
$
49.9
$
49.6
$
50.5
Average total direct claims paid (3) (4)
$
47.9
$
50.0
$
50.0
$
49.5
$
50.6
($ in thousands, except primary reserve
December 31,
September 30,
June 30,
March 31,
December 31,
per
2016
2016
2016
2016
2015
primary default amounts)
Reserve for losses by category
Prime
$ 379,845
$ 409,438
$ 420,281
$ 438,598
$ 480,481
Alt-A
148,006
166,349
173,284
183,189
203,706
A minus and below
101,653
106,678
112,001
116,835
129,352
IBNR and other
71,107
73,057
74,639
79,051
83,066
LAE
18,630
21,255
22,389
23,600
26,108
Reinsurance recoverable (5)
6,816
6,448
6,044
8,239
8,286
Total primary reserves
726,057
783,225
808,638
849,512
930,999
Pool insurance
31,853
36,065
36,982
38,843
42,084
IBNR and other
673
823
897
1,050
1,118
LAE
933
1,112
1,163
1,227
1,335
Reinsurance recoverable (5)
34
36
33
--
--
Total pool reserves
33,493
38,036
39,075
41,120
44,537
Total 1st lien reserves
759,550
821,261
847,713
890,632
975,536
Second-lien and other
719
673
666
716
863
Total reserves
$ 760,269
$ 821,934
$ 848,379
$ 891,348
$ 976,399
1st lien reserve per default
Primary reserve per primary default excluding IBNR and other
$
22,503
$
24,049
$
24,609
$
24,959
$
24,019
(1)
Net of reinsurance recoveries.
(2)
For 2015, includes the impact of the BofA Settlement Agreement.
(3)
Calculated without giving effect to the impact of the
termination of captive transactions and settlements.
(4)
Before reinsurance recoveries.
(5)
Represents ceded losses on captive transactions and quota share
reinsurance transactions.
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Default Statistics
Exhibit K
December 31,
September 30,
June 30,
March 31,
December 31,
2016
2016
2016
2016
2015
Default Statistics
Primary Insurance:
Prime
Number of insured loans
849,227
840,534
826,511
817,236
816,797
Number of loans in default
19,101
19,100
19,025
19,510
22,223
Percentage of loans in default
2.25 %
2.27 %
2.30 %
2.39 %
2.72 %
Alt-A
Number of insured loans
26,536
28,080
29,445
30,990
32,411
Number of loans in default
4,193
4,545
4,820
5,138
5,813
Percentage of loans in default
15.80 %
16.19 %
16.37 %
16.58 %
17.94 %
A minus and below
Number of insured loans
27,115
28,313
29,450
30,681
31,902
Number of loans in default
5,811
5,885
5,982
6,221
7,267
Percentage of loans in default
21.43 %
20.79 %
20.31 %
20.28 %
22.78 %
Total Primary
Number of insured loans
902,878
896,927
885,406
878,907
881,110
Number of loans in default (1)
29,105
29,530
29,827
30,869
35,303
Percentage of loans in default
3.22 %
3.29 %
3.37 %
3.51 %
4.01 %
(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:
December 31,
September 30,
June 30,
March 31,
December 31,
2016
2016
2016
2016
2015
Number of loans in default
1,639
1,888
2,180
2,339
2,821
Radian Group Inc. and Subsidiaries
Mortgage Insurance Supplemental Information - Captives, QSR and
Persistency
Exhibit L
2016
2015
($ in thousands)
Qtr 4
Qtr 3
Qtr 2
Qtr 1
Qtr 4
Initial and Second Quota Share
Reinsurance ("QSR") Transaction
QSR ceded premiums written (1)
$
6,049
$
6,730
$
7,356
$
7,962
$
6,934
% of premiums written
2.4 %
2.6 %
2.9 %
3.4 %
2.9
%
QSR ceded premiums earned (1)
$
9,421
$
10,597
$
11,172
$
11,325
$
10,523
% of premiums earned
3.8 %
4.1 %
4.5 %
4.7 %
4.4
%
Ceding commissions written
$
1,728
$
1,922
$
2,099
$
2,270
$
2,553
Ceding commissions earned (2)
$
4,374
$
3,974
$
3,779
$
4,446
$
3,466
Profit commission
$ --
$ --
$ --
$ --
$
1,559
Risk in force included in QSR (3)
$
1,578,300
$
1,718,031
$
1,872,017
$
2,018,468
$ 2,131,030
Single Premium QSR Transaction
QSR ceded premiums written (1)
$
11,121
$
13,004
$
11,488
$
197,593
N/A
% of premiums written
4.4 %
5.0 %
4.6 %
84.7 %
N/A
QSR ceded premiums earned (1)
$
8,060
$
8,608
$
7,146
$
5,994
N/A
% of premiums earned
3.2 %
3.3 %
2.9 %
2.5 %
N/A
Ceding commissions written
$
4,895
$
5,482
$
4,844
$
50,932
N/A
Ceding commissions earned (2)
$
4,130
$
4,382
$
3,759
$
3,032
N/A
Profit commission
$
8,458
$
8,922
$
7,891
$
6,134
N/A
Risk in force included in QSR (3)
$
3,761,648
$
3,621,993
$
3,461,464
$
3,308,057
N/A
Total risk in force included in QSRs
$
5,339,948
$
5,340,024
$
5,333,481
$
5,326,525
$ 2,131,030
1st Lien Captives
Premiums earned ceded to captives
$
503
$
537
$
1,346
$
1,869
$
2,268
% of total premiums earned
0.2 %
0.2 %
0.5 %
0.8 %
1.0
%
Persistency Rate (twelve months ended)
76.7 %
78.4 %
79.9 %
79.4 %
78.8
%
Persistency Rate (quarterly, annualized) (4)
76.8 %
75.3 %
78.0 %
82.3 %
81.8
%
(1)
Net of profit commission.
(2)
Includes amounts reported in policy acquisition costs and other
operating expenses.
(3)
Included in primary risk in force.
(4)
The Persistency Rate on a quarterly, annualized basis may be
impacted by seasonality or other factors, and may not be
indicative of full-year trends.

FORWARD-LOOKING STATEMENTS

All statements in this 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:

changes in general economic and political conditions, including in particular but without limitation, unemployment rates, interest rates and changes in housing and mortgage credit markets, that impact the size of the insurable market and the credit performance of our insured portfolio;

changes in the way customers, investors, regulators or legislators perceive the performance and financial strength of private mortgage insurers;

Radian Guaranty’s ability to remain eligible under the PMIERs and other applicable requirements imposed by the Federal Housing Finance Agency and by the GSEs to insure loans purchased by the GSEs;

our ability to successfully execute and implement our capital plans and to maintain sufficient holding company liquidity to meet our short- and long-term liquidity needs;

our ability to successfully execute and implement our business plans and strategies, including in particular but without limitation, plans and strategies that require GSE and/or regulatory approvals;

our ability to maintain an adequate level of capital in our insurance subsidiaries to satisfy existing and future state regulatory requirements;

changes in the charters or business practices of, or rules or regulations imposed by or applicable to the GSEs, including the GSEs’ interpretation and application of the PMIERs to our mortgage insurance business;

changes in the current housing finance system in the U.S., including in particular but without limitation, the role of the FHA, the GSEs and private mortgage insurers in this system;

any disruption in the servicing of mortgages covered by our insurance policies, as well as poor servicer performance;

a significant decrease in the persistency rates of our mortgage insurance policies;

competition in our mortgage insurance business, including in particular but without limitation, price competition and competition from the FHA, VA and other forms of credit enhancement;

the effect of the Dodd-Frank Wall Street Reform and Consumer Protection Act on the financial services industry in general, and on our businesses in particular;

the adoption of new laws and regulations, or changes in existing laws and regulations, or the way they are interpreted or applied;

the outcome of legal and regulatory actions, reviews, audits, inquiries and investigations that could result in adverse judgments, settlements, fines, injunctions, restitutions or other relief that could require significant expenditures or have other effects on our business;

the amount and timing of potential payments or adjustments associated with federal or other tax examinations, including deficiencies assessed by the IRS resulting from its examination of our 2000 through 2007 tax years, which we are currently contesting;

the possibility that we may fail to estimate accurately the likelihood, magnitude and timing of losses in connection with establishing loss reserves for our mortgage insurance business;

volatility in our results of operations caused by changes in the fair value of our assets and liabilities, including a significant portion of our investment portfolio;

-- changes in GAAP or SAPP rules and guidance, or their interpretation;

-- our ability to attract and retain key employees;

legal and other limitations on dividends and other amounts we may receive from our subsidiaries; and

the possibility that we may need to impair the carrying value of goodwill established in connection with our acquisition of Clayton.

For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of our 2015 Form 10-K, and in our subsequent quarterly and other reports filed from time to time with the SEC. 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 report. 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.

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SOURCE: Radian Group Inc.

Radian Group Inc.
Emily Riley, 215-231-1035
emily.riley@radian.biz