-- Fourth quarter net income of $61 million, or
$0.27 per diluted share; Full year net income of $308 million or
$1.37 per diluted share –
-- 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. (NYSE: 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 EndedDecember 31, 2016
Year EndedDecember 31, 2015
PercentChange
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 EndedDecember 31, 2016
Quarter EndedDecember 31, 2015
PercentChange
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. (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:
- 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 EndedDecember 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 tax (1) 665
848 913 3,390 3,664
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 tax (1)
5,816 14,758
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 tax (1)
5,816 14,758
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 )
Net premiums earned - insurance
$ 921,769 $ 915,908
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 allocations (4) 3,586 4,803
1,450 (3,774 ) 4,180
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
EndedDecember 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 EndedDecember 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 allocations (5) 6,065 22,369
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 EndedDecember 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 EndedDecember 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)
MortgageInsurance
Services Total Total
assets $ 5,506,338 $ 356,836
$ 5,863,174 At December 31, 2015
(In
thousands)
MortgageInsurance
Services Total 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
(In
thousands)
Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
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 EndedDecember 31,
(In
thousands)
2016 2015
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 EndedDecember 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 EndedDecember 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 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 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 %
2006
2.9 3.1 3.4 3.6 3.7
2007
7.0 7.4 7.9 8.4 8.7
2008
4.8 5.2 5.6 6.0 6.3
2009
1.0 1.2 1.3 1.5 1.7
2010
0.9 1.0 1.2 1.3 1.4
2011
2.0 2.2 2.5 2.7 2.9
2012
8.0 8.8 9.7 10.6 11.2
2013
12.6 13.9 15.5 17.0 18.1
2014
12.0 13.4 14.9 16.3 17.1
2015
18.1 19.4 21.0 22.0 22.6
2016
25.9 19.3 11.5 4.6 —
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 per
December 31, September 30, June 30, March 31, December 31,
primary default
amounts)
2016 2016 2016 2016 2015
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.
View source
version on businesswire.com: http://www.businesswire.com/news/home/20170126005250/en/
Radian Group Inc.Emily Riley,
215-231-1035emily.riley@radian.biz
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