Radian Announces Fourth Quarter and Full Year 2018 Financial Results

— Fourth quarter GAAP net income of $139.8 million, or $0.64 per
diluted share, and full year GAAP net income of $606.0 million, or $2.77
per diluted share —

— Adjusted diluted net operating income per share for the fourth
quarter of $0.70, an increase of 37% year-over-year, and for the full
year of $2.69, an increase of 48% year-over-year —

— Writes $56.5 billion in new MI business for 2018, sets company
record for flow MI; MI in force increases 10% year-over-year to $221
billion and net MI premiums earned exceeds $1 billion —

— Improves financial flexibility with $450 million return of capital
from Radian Guaranty to Radian Group —

PHILADELPHIA–(BUSINESS WIRE)–Radian Group Inc. (NYSE: RDN) today reported net income for the quarter
ended December 31, 2018, of $139.8 million, or $0.64 per diluted share.
This compares with net income for the quarter ended December 31, 2017,
of $6.8 million, or $0.03 per diluted share, which included an
incremental tax provision of $102.6 million, representing the impact of
tax reform enacted in the fourth quarter of 2017.

Net income for the full year 2018 was $606.0 million, or $2.77 per
diluted share, which includes a tax benefit of approximately $73.6
million from the impact of the settlement with the IRS as well as the
reversal of certain previously accrued state and local tax liabilities.
This compares to net income for the full year 2017 of $121.1 million, or
$0.55 per diluted share which, in addition to the incremental tax
provision, included impairment of goodwill and other acquired intangible
assets related to the Mortgage and Real Estate Services segment of
$130.9 million, net of tax.

 

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

     

Year ended
December 31, 2018

   

Year ended
December 31, 2017

   

Percent
Change

Net income (1)     $606.0     $121.1     N/M (2)
Diluted net income per share     $2.77     $0.55     N/M (2)
Consolidated pretax income     $684.2     $346.7     97%
Adjusted pretax operating income (3)     $745.5     $617.2     21%

Adjusted diluted net operating
income per share(3) (4)

    $2.69     $1.82     48%
Net premiums earned – mortgage insurance     $1,006.7     $932.8     8%
MI New Insurance Written (NIW)     $56,547     $53,905     5%
MI primary insurance in force     $221,443     $200,724     10%
Book value per share     $16.34     $13.90     18%
Return on equity (1)(5)     18.7%     4.1%     N/M (2)
Adjusted net operating return on equity (3)     18.2%     13.7%     33%
                   
     

Quarter ended
December 31, 2018

   

Quarter ended
December 31, 2017

   

Percent
Change

Net income (1)     $139.8     $6.8     N/M (2)
Diluted net income per share     $0.64     $0.03     N/M (2)
Consolidated pretax income     $176.5     $164.7     7%
Adjusted pretax operating income (3)     $193.7     $172.5     12%

Adjusted diluted net operating
income per share(3) (4)

    $0.70     $0.51     37%
Net premiums earned – mortgage insurance     $259.7     $245.2     6%
MI New Insurance Written (NIW)     $12,737     $14,383     (11)%
Return on equity (1)(5)     16.4%     0.9%     N/M (2)
Adjusted net operating return on equity (3)     17.9%     15.0%     19%
           
(1)    

Net income for the full year 2018 includes the impact of tax
benefits of $73.6 million, which includes both the impact of the
settlement with the IRS as well as the reversal of certain
previously accrued state and local tax liabilities. Additionally,
net income for the fourth quarter and the full year 2018 includes
a pretax net loss on investments and other financial instruments
of $11.7 million and $42.5 million, respectively. Net income for
the fourth quarter and full year 2017 includes an incremental tax
provision of $102.6 million as a result of the remeasurement of
net deferred tax assets to reflect lower enacted corporate tax
rates. Additionally, net income for the full year 2017 includes
pretax impairment of goodwill and other acquired intangible assets
related to the Mortgage and Real Estate Services segment of $200.2
million and a $51.5 million pretax loss on induced conversion and
debt extinguishment (incurred primarily to purchase the company’s
convertible debt prior to maturity).

(2)

N/M – Calculation results are not meaningful.

(3)

Adjusted results, including adjusted pretax operating income,
adjusted diluted net operating income per share, and adjusted net
operating return on equity are non-GAAP financial measures. For
definitions and reconciliations of these measures to the
comparable GAAP measures, see Exhibits F and G.

(4)

Adjusted diluted net operating income per share is calculated
using the company’s statutory tax rates of 21 percent in 2018 and
35 percent in 2017.

(5)

Calculated by dividing annualized net income by average
stockholders’ equity, based on the average of the beginning and
ending balances for each period presented.

 

Adjusted pretax operating income for the quarter ended December 31,
2018, was $193.7 million, compared to $172.5 million for the quarter
ended December 31, 2017. Adjusted diluted net operating income per share
for the quarter ended December 31, 2018, was $0.70, an increase of 37
percent compared to $0.51 for the quarter ended December 31, 2017.
Adjusted pretax operating income for the year ended December 31, 2018,
was $745.5 million, compared to $617.2 million for the same period of
2017. Adjusted diluted net operating income per share for the year ended
December 31, 2018, was $2.69, an increase of 48 percent compared to
$1.82 for the same period of 2017.

Book value per share at December 31, 2018, was $16.34, compared to
$15.69 at September 30, 2018, and an increase of 18 percent compared to
$13.90 at December 31, 2017.

“I am pleased to report that 2018 was another outstanding year for
Radian, with net income of $606 million, return on equity of 18.7%, 10%
growth in mortgage insurance in force and record volume of flow mortgage
insurance business,” said Radian’s Chief Executive Officer Rick
Thornberry. “We are delivering on our strategy of becoming an even
stronger company across all of our businesses, from Mortgage Insurance
and Risk Services to Title, Mortgage and Real Estate Services, while
also strengthening our capital position and increasing our financial
flexibility.”

FOURTH QUARTER AND FULL YEAR HIGHLIGHTS

  • MI new insurance written (NIW) grew to $56.5 billion for the full year
    2018, an increase of 5 percent compared to $53.9 billion for the prior
    year. NIW was $12.7 billion for the fourth quarter, compared to $15.8
    billion in the third quarter of 2018 and $14.4 billion in the
    prior-year quarter.

    • NIW for the full year 2018 represented record volume written on a
      flow basis for the company.
    • Of the $12.7 billion in NIW in the fourth quarter of 2018, 83
      percent was written with monthly premiums, compared to 78 percent
      in the third quarter of 2018, and 77 percent a year ago.
    • Borrower-paid originations accounted for 94 percent of total NIW
      in the fourth quarter of 2018, compared to 91 percent in the third
      quarter of 2018, and 79 percent a year ago.
    • Purchase originations accounted for 95 percent of total NIW in the
      fourth quarter of 2018, compared to 96 percent in the third
      quarter of 2018, and 88 percent a year ago.
  • Total primary mortgage insurance in force as of December 31, 2018,
    grew to $221.4 billion, an increase of 2 percent compared to $217.1
    billion as of September 30, 2018, and an increase of 10 percent
    compared to $200.7 billion as of December 31, 2017.

    • The composition of Radian’s mortgage insurance portfolio continues
      to improve, with 94 percent consisting of new business written
      after 2008, including those loans that successfully completed the
      Home Affordable Refinance Program (HARP).
    • Persistency, which is the percentage of mortgage insurance that
      remains in force after a twelve-month period, was 83.1 percent for
      the twelve months ended December 31, 2018, compared to 81.4
      percent for the twelve months ended September 30, 2018 and 81.1
      percent for the twelve months ended December 31, 2017.
    • Annualized persistency for the three months ended December 31,
      2018, was 85.5 percent, compared to 83.4 percent for the three
      months ended September 30, 2018, and 79.4 percent for the three
      months ended December 31, 2017.
  • Net mortgage insurance premiums earned were $259.7 million for the
    quarter ended December 31, 2018, compared to $255.5 million for the
    quarter ended September 30, 2018, and $245.2 million for the quarter
    ended December 31, 2017.

    • Mortgage insurance in force portfolio yield was 49.0 basis points
      in the fourth quarter, compared to 48.6 basis points in the third
      quarter of 2018, and 48.1 basis points in the fourth quarter of
      2017.
    • Total net mortgage insurance premium yield, which includes the
      impact of ceded premiums and accrued profit commission, was 47.4
      basis points in the fourth quarter, compared to 47.8 basis points
      in the third quarter of 2018, and 49.4 basis points in the fourth
      quarter of 2017.
    • Additional details regarding notable variable items impacting
      premiums earned may be found in Exhibit D.
  • The mortgage insurance provision for losses was $27.1 million in the
    fourth quarter of 2018, compared to $20.7 million in the third quarter
    of 2018, and $35.3 million in the fourth quarter of 2017.

    • The number of primary delinquent loans was 21,093 as of December
      31, 2018, an increase of 2 percent compared to 20,770 as of
      September 30, 2018 and a decrease of 24 percent compared to 27,922
      as of December 31, 2017. The elevated number of primary delinquent
      loans as of December 31, 2017 was driven by new notices of default
      from areas affected by major 2017 hurricanes. Based on past
      experience, the company continues to expect that these
      delinquencies will not result in a material number of new paid
      claims.
    • The primary mortgage insurance delinquency rate was 2.1 percent in
      the fourth quarter of 2018, compared to 2.1 percent in the third
      quarter of 2018, and 2.9 percent in the fourth quarter of 2017.
    • The loss ratio in the fourth quarter was 10.4 percent, compared to
      8.1 percent in the third quarter of 2018 and 14.4 percent in the
      fourth quarter of 2017.
    • Mortgage insurance loss reserves were $397.9 million as of
      December 31, 2018, compared to $409.0 million as of September 30,
      2018, and $507.6 million as of December 31, 2017.
  • Total mortgage insurance claims paid were $39.7 million in the fourth
    quarter, compared to $59.8 million in the third quarter of 2018, and
    $85.5 million in the fourth quarter of 2017. Excluding the impact of
    commutations and captive terminations, claims paid were $35.4 million
    in the fourth quarter of 2018, compared to $47.1 million in the third
    quarter of 2018 and $58.9 million in the fourth quarter of 2017. For
    the full year 2018, total net claims paid were $215.9 million,
    compared to $390.4 million for the full year 2017. Claims paid for the
    full year 2017 included the payment of $54.8 million made in
    connection with the scheduled final settlement of the Freddie Mac
    Agreement entered into in August 2013. In addition, the company’s
    pending claim inventory declined 8 percent from the fourth quarter of
    2017.
  • Total Mortgage and Real Estate Services Segment revenues for the
    fourth quarter were $41.5 million, compared to $40.9 million for the
    third quarter of 2018, and $40.7 million for the fourth quarter of
    2017. Total revenues for the full year 2018 were $157.1 million,
    compared to $161.8 million for the same period of 2017. Adjusted
    earnings before interest, income taxes, depreciation and amortization
    (Services adjusted EBITDA) for the quarter ended December 31, 2018 was
    $3.2 million, compared to $0.6 million for the quarter ended September
    30, 2018, and $3.8 million for the quarter ended December 31, 2017.
    Services adjusted EBITDA for the full year 2018 was $6.2 million,
    compared to $2.0 million for the prior year period. Additional details
    regarding the non-GAAP measure Services adjusted EBITDA may be found
    in Exhibits F and G.
  • As previously announced and during the fourth quarter, Radian acquired
    Independent Settlement Services, a national appraisal and title
    management services company, and Five Bridges Advisors, LLC, a
    developer of proprietary software, data analytics and predictive
    models leveraging artificial intelligence, machine learning and
    traditional econometric techniques. While the financial terms of the
    transactions were immaterial to Radian, the acquisitions are
    consistent with the company’s growth and diversification strategy, as
    well as its focus on the core product offerings of its Title, Mortgage
    and Real Estate Services businesses.
  • Other operating expenses were $77.3 million in the fourth quarter,
    compared to $70.1 million in the third quarter of 2018, and $66.0
    million in the fourth quarter of last year. The year-over-year
    increase was driven primarily by approximately $5.5 million in
    increased incentive compensation and benefits based on year-to-date
    performance and approximately $4.1 million of incremental expenses
    related to the operations of businesses acquired in 2018.

CAPITAL AND LIQUIDITY UPDATE

As of December 31, 2018, Radian Group maintained $714 million of
available liquidity. Total liquidity, which includes the company’s $268
million unsecured revolving credit facility, was $982 million as of
December 31, 2018. The company remains focused on optimizing its capital
position, enhancing its return on capital, and increasing its financial
flexibility.

  • The Pennsylvania Insurance Department approved a $450 million return
    of capital from Radian Guaranty to Radian Group during the fourth
    quarter of 2018, which was paid on December 21, 2018 from Radian
    Guaranty’s gross paid in and contributed statutory surplus. This
    strategic capital action improves Radian Group’s financial
    flexibility. The company plans to use a portion of these proceeds to
    retire its $159 million in Senior Notes when due in June 2019.
  • As previously announced, Radian executed the mortgage insurance
    industry’s first simultaneous mortgage insurance linked notes (ILNs)
    and excess of loss (XOL) reinsurance placement during the fourth
    quarter of 2018. Radian Guaranty Inc., the principal mortgage
    insurance subsidiary of Radian Group, obtained $434 million of credit
    risk protection from Eagle Re 2018-1 Ltd. (Eagle Re) through the
    issuance by Eagle Re of ILNs to eligible third-party capital markets
    investors in an unregistered private offering. Eagle Re is a special
    purpose insurer domiciled in Bermuda and is not a subsidiary or
    affiliate of Radian. In addition, Radian Guaranty agreed to terms with
    a third-party global reinsurer on a separate XOL reinsurance agreement
    for $21 million of protection. The ILN-related reinsurance and XOL
    transfer risk on the same portfolio of eligible mortgage insurance
    policies issued by Radian Guaranty between January 2017 and December
    2017, with the XOL covering a pro rata portion of the risk alongside
    certain classes of the ILNs.
  • After consideration of the ILN and XOL reinsurance placement and the
    $450 million return of capital described above, as of December 31,
    2018, Radian Guaranty had Available Assets under the Private Mortgage
    Insurer Eligibility Requirements (PMIERs 1.0) of approximately $3.5
    billion, which resulted in an excess or “cushion” of approximately
    $567 million, or 19 percent, over its Minimum Required Assets of
    approximately $2.9 billion.
  • If the new PMIERs (PMIERs 2.0) requirements were in effect, Radian
    Guaranty calculates that its Available Assets at December 31, 2018
    would have resulted in a cushion of approximately $340 million, or 12
    percent, over its Minimum Required Assets. The change in Radian’s
    PMIERs cushion for PMIERs 2.0 as compared to PMIERs 1.0 is primarily
    due to the elimination in PMIERS 2.0 of any credit for future premiums
    that is currently allowed for insurance policies written prior to and
    including 2008. Radian continues to expect its PMIERs cushion to
    increase over time as a result of continued organic growth and ongoing
    risk distribution.

CONFERENCE CALL

Radian will discuss fourth quarter and year-end 2018 financial results
in a conference call today, Friday, February 8, 2019, at 9:00 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 800.230.1085 inside the U.S.,
or 612.288.0340 for international callers, using passcode 462718 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 462718.

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, adjusted diluted
net operating income per share and adjusted net operating return on
equity (non-GAAP measures) facilitate evaluation of the company’s
fundamental financial performance and provide relevant and meaningful
information to investors about the ongoing operating results of the
company. On a consolidated basis, these measures are not recognized in
accordance with accounting principles generally accepted in the United
States of America (GAAP) and should not be considered in isolation or
viewed as substitutes for GAAP measures of performance. The measures
described below have been established in order to increase transparency
for the purpose of evaluating the company’s operating trends and
enabling more meaningful comparisons with Radian’s competitors.

Adjusted pretax operating income 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. 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 or
impairment of goodwill and other acquired intangible assets; and (v) net
impairment losses recognized in earnings and losses from the sale of
business lines. 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. Adjusted net operating return on
equity is calculated by dividing annualized adjusted pretax operating
income, net of taxes computed using the company’s statutory tax rate, by
average stockholders’ equity, based on the average of the beginning and
ending balances for each period presented.

The company has also presented a non-GAAP measure for tangible book
value per share, which represents book value per share less the
per-share impact of goodwill and other acquired intangible assets, net.
The company uses this measure to assess the quality and growth of its
capital. Because tangible book value per share is a widely used
financial measure which focuses on the underlying fundamentals of the
company’s financial position and operating trends without the impact of
goodwill and other acquired intangible assets, the company believes that
current and prospective investors may find it useful in their analysis.

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
tax provision (benefit), 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. In addition, the company also has presented a
related non-GAAP measure, Services adjusted EBITDA margin, which is
calculated by dividing Services adjusted EBITDA by GAAP total revenue
for the Services segment. Services adjusted EBITDA and Services adjusted
EBITDA margin are presented to facilitate comparisons with other
services companies, since they are widely accepted measures of
performance in the services industry and are used internally as
supplemental measures to evaluate the performance of our Services
segment.

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

ABOUT RADIAN

Radian is ensuring the American dream of homeownership responsibly and
sustainably through products and services that include industry-leading
mortgage insurance and a comprehensive suite of mortgage, risk, real
estate, and title services. We are powered by technology, informed by
data and driven to deliver new and better ways to transact and manage
risk. Learn more about Radian’s financial strength and flexibility at www.radian.biz
and visit www.radian.com
to see how Radian is shaping the future of mortgage and real estate
services.

 

FINANCIAL RESULTS AND SUPPLEMENTAL INFORMATION CONTENTS
(Unaudited)

For historical trend information, 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 Restructuring and Other Exit
Costs
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
Reinsurance Programs
 
                   

Radian Group Inc. and Subsidiaries

Condensed Consolidated Statements of Operations Trend Schedule

Exhibit A (page 1 of 2)

 
 
2018 2017

(In thousands, except per-share amounts)

Qtr 4 Qtr 3 Qtr 2 Qtr 1 Qtr 4
 
Revenues:
Net premiums earned – insurance $ 261,682 $ 258,431 $ 251,344 $ 242,550 $ 245,175
Services revenue 38,414 36,566 36,828 33,164 39,703
Net investment income 42,051 38,995 37,473 33,956 33,605
Net gains (losses) on investments and other financial instruments (11,705 ) (4,480 ) (7,404 ) (18,887 ) (1,339 )
Other income   1,031     1,174     1,016     807     768  
Total revenues   331,473     330,686     319,257     291,590     317,912  
 
Expenses:
Provision for losses 27,140 20,881 19,337 37,283 35,178
Policy acquisition costs 6,485 5,667 5,996 7,117 5,871
Cost of services 24,939 25,854 24,205 23,126 23,349
Other operating expenses 77,266 70,125 70,184 63,243 65,999
Restructuring and other exit costs 113 4,464 925 551 5,230
Interest expense 15,584 15,535 15,291 15,080 14,929
Amortization and impairment of other acquired intangible assets   3,461     3,472     2,748     2,748     2,629  
Total expenses   154,988     145,998     138,686     149,148     153,185  
 
Pretax income 176,485 184,688 180,571 142,442 164,727
Income tax provision (benefit)   36,706     41,891     (28,378 )   27,956     157,911  
Net income $ 139,779   $ 142,797   $ 208,949   $ 114,486   $ 6,816  
 
Diluted net income per share $ 0.64   $ 0.66   $ 0.96   $ 0.52   $ 0.03  
 

Contacts

Emily Riley – Phone: 215.231.1035
Email: emily.riley@radian.biz

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