Article Top Ad
Reading Time: 13 minutes

— Fourth quarter GAAP net income of $161 million, or $0.79 per diluted share, and full year GAAP net income of $672 million, or $3.20 per diluted share —

— Adjusted diluted net operating income per share for the fourth quarter of $0.86, an increase of 23% year-over-year, and for the full year of $3.21, an increase of 19% year-over-year —

— Writes $71 billion in new MI business for 2019; MI in force increases 9% year-over-year to $241 billion —

— Purchases $300 million or 13.5 million shares of Radian Group common stock in 2019 —

— In 2020, enhances risk profile and improves capital position with closing of $488 million ILN transaction; improves financial flexibility with return of capital from Radian Reinsurance to Radian Group —

PHILADELPHIA–(BUSINESS WIRE)–Radian Group Inc. (NYSE: RDN) today reported net income for the quarter ended December 31, 2019, of $161.2 million, or $0.79 per diluted share. This compares with net income for the quarter ended December 31, 2018, of $139.8 million, or $0.64 per diluted share.

Net income for the full year 2019 was $672.3 million, or $3.20 per diluted share. This compares to net income for the full year 2018 of $606.0 million, or $2.77 per diluted share, which included 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.

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

 

 

Quarter ended

December 31, 2019

 

Quarter ended

December 31, 2018

 

Percent

Change

Net income(1)

$161.2

$139.8

15

%

Diluted net income per share

$0.79

$0.64

23

%

Consolidated pretax income

$205.6

$176.5

16

%

Adjusted pretax operating income(2)

$224.0

$193.7

16

%

Adjusted diluted net operating income per share(2)(3)

$0.86

$0.70

23

%

Net premiums earned – mortgage insurance(4)

$298.5

$259.7

15

%

MI New Insurance Written (NIW)

$19,953

$12,737

57

%

MI primary insurance in force

$240,558

$221,443

9

%

Book value per share(5)

$20.13

$16.34

23

%

Available holding company liquidity

$652.6

$714.1

(9

)%

Return on equity(1)(6)

16.2%

16.4%

(1

)%

Adjusted net operating return on equity (2)

17.8%

17.9%

(1

)%

 
 

 

Year ended

December 31, 2019

 

Year ended

December 31, 2018

 

Percent

Change

Net income(1)

$672.3

$606.0

11

%

Diluted net income per share

$3.20

$2.77

16

%

Consolidated pretax income

$849.0

$684.2

24

%

Adjusted pretax operating income(2)

$854.6

$745.5

15

%

Adjusted diluted net operating income per share(2)(3)

$3.21

$2.69

19

%

Net premiums earned – mortgage insurance(4)

$1,134.2

$1,006.7

13

%

MI New Insurance Written (NIW)

$71,327

$56,547

26

%

Return on equity(1)(6)

17.8%

18.7%

(5

)%

Adjusted net operating return on equity(2)

17.9%

18.2%

(2

)%

 
 

(1)

Net income for the fourth quarter and full year 2019 includes a pretax net gain on investments and other financial instruments of $4.3 million and $51.7 million, respectively, compared to net losses on investments and other financial instruments for the fourth quarter and full year 2018 of $11.7 million and $42.5 million, respectively. Net income for the fourth quarter and full year 2019 also includes a pre-tax, non-cash impairment of goodwill and other acquired intangible assets of $18.5 million related to the company’s previously announced sale of Clayton Services in January 2020. Additionally, 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.

(2)

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.

(3)

Adjusted diluted net operating income per share is calculated using the company’s statutory tax rate of 21 percent.

(4)

Quarter and year ended December 31, 2019 includes a cumulative impact of $17.4 million related to the recognition of deferred initial premiums on monthly policies.

(5)

Accumulated other comprehensive income (loss) impacted book value per share by $0.55 per share as of December 31, 2019, and $(0.29) per share as of December 31, 2018.

(6)

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, 2019, was $224.0 million, compared to $193.7 million for the quarter ended December 31, 2018. Adjusted pretax operating income for the year ended December 31, 2019, was $854.6 million, compared to $745.5 million for the same period of 2018. Adjusted diluted net operating income per share for the quarter ended December 31, 2019, was $0.86, compared to $0.70 for the quarter ended December 31, 2018. Adjusted diluted net operating income per share for the year ended December 31, 2019, was $3.21, an increase of 19 percent compared to $2.69 for the same period of 2018.

Book value per share at December 31, 2019, was $20.13, compared to $19.40 at September 30, 2019, and an increase of 23 percent compared to $16.34 at December 31, 2018.

“I am pleased to report that 2019 was another outstanding year for Radian, with net income of $672 million, adjusted pretax operating income of $855 million, 23% year-over-year growth in book value and record volume of flow mortgage insurance business for the fourth consecutive year,” said Radian’s Chief Executive Officer Rick Thornberry. “We took several steps to execute our capital strategy and strengthen our risk profile, including returning capital from our mortgage insurance subsidiaries to Radian Group, repurchasing shares of common stock, executing a mortgage insurance-linked notes transaction, reducing our total debt outstanding, and improving our debt maturity profile.”

FOURTH QUARTER AND FULL YEAR HIGHLIGHTS

  • NIW was $20.0 billion for the fourth quarter, compared to $22.0 billion in the third quarter of 2019 and $12.7 billion in the prior-year quarter. NIW was $71.3 billion for the full year 2019, an increase of 26 percent compared to $56.5 billion for the prior year.

    • NIW for the full year 2019 represented record volume written on a flow basis for the company.
    • Of the $20.0 billion in NIW in the fourth quarter of 2019, 82 percent was written with monthly and other recurring premiums, compared to 85 percent in the third quarter of 2019, and 83 percent in the fourth quarter of 2018.
    • Borrower-paid originations accounted for 97 percent of total NIW in the fourth quarter of 2019, compared to 97 percent in the third quarter of 2019, and 94 percent in the fourth quarter of 2018.
    • Refinances accounted for 33 percent of total NIW in the fourth quarter of 2019, compared to 19 percent in the third quarter of 2019, and 5 percent in the fourth quarter of 2018.
  • Total primary mortgage insurance in force as of December 31, 2019, grew to $240.6 billion, an increase of 1 percent compared to $237.2 billion as of September 30, 2019, and an increase of 9 percent compared to $221.4 billion as of December 31, 2018.

    • Radian’s mortgage insurance portfolio consists of 95 percent 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 78.2 percent for the twelve months ended December 31, 2019, compared to 81.5 percent for the twelve months ended September 30, 2019 and 83.1 percent for the twelve months ended December 31, 2018.
    • Annualized persistency for the three months ended December 31, 2019, was 75.0 percent, compared to 75.5 percent for the three months ended September 30, 2019, and 85.5 percent for the three months ended December 31, 2018.
  • Net mortgage insurance premiums earned were $298.5 million for the quarter ended December 31, 2019, compared to $277.6 million for the quarter ended September 30, 2019, and $259.7 million for the quarter ended December 31, 2018. Net mortgage insurance premiums earned were $1.1 billion for the year ended December 31, 2019, compared to $1.0 billion for the year ended December 31, 2018.

    • During the fourth quarter 2019, earned premiums were positively impacted by $17.4 million for the cumulative recognition of deferred initial premiums on monthly policies.
    • Mortgage insurance in force portfolio premium yield was 50.0 basis points in the fourth quarter of 2019, or 47.1 basis points excluding the impact of the premium adjustment described above. This compares to 47.4 basis points in the third quarter of 2019 and 49.0 basis points in the fourth quarter of 2018.
    • The impact of single premium cancellations before consideration of reinsurance represented 4.4 basis points of direct premium yield in the fourth quarter of 2019, 4.6 basis points in the third quarter of 2019, and 1.7 basis points in the fourth quarter of 2018.
    • Total net mortgage insurance premium yield, which includes the impact of ceded premiums and accrued profit commission, was 50.0 basis points in the fourth quarter of 2019, or 47.1 basis points excluding the impact of the premium adjustment described above. This compares to 47.5 basis points in the third quarter of 2019, and 47.4 basis points in the fourth quarter of 2018.
    • Additional details regarding premiums earned may be found in Exhibit D.
  • The mortgage insurance provision for losses was $34.4 million in the fourth quarter of 2019, compared to $29.1 million in the third quarter of 2019, and $27.1 million in the fourth quarter of 2018. The mortgage insurance provision for losses was $131.5 million for the year ended December 31, 2019, compared to $104.5 million for the year ended December 31, 2018.

    • The number of primary delinquent loans was 21,266 as of December 31, 2019, an increase of 5 percent compared to 20,184 as of September 30, 2019 and an increase of 1 percent compared to 21,093 as of December 31, 2018.
    • The primary mortgage insurance delinquency rate was 2.0 percent in the fourth quarter of 2019, compared to 1.9 percent in the third quarter of 2019, and 2.1 percent in the fourth quarter of 2018.
    • The loss ratio in the fourth quarter was 11.5 percent, compared to 10.5 percent in the third quarter of 2019 and 10.4 percent in the fourth quarter of 2018.
    • Mortgage insurance loss reserves were $401.3 million as of December 31, 2019, compared to $394.1 million as of September 30, 2019, and $397.9 million as of December 31, 2018.
    • Total mortgage insurance claims paid were $28.5 million in the fourth quarter, compared to $36.7 million in the third quarter of 2019, and $39.7 million in the fourth quarter of 2018. Excluding the impact of commutations and captive terminations, claims paid were $24.8 million in the fourth quarter of 2019, compared to $29.9 million in the third quarter of 2019 and $35.4 million in the fourth quarter of 2018. For the full year 2019, total net claims paid were $132.2 million, compared to $215.9 million for the full year 2018. In addition, the company’s pending claim inventory declined 15 percent from the fourth quarter of 2018.
  • Total Services Segment revenues for the fourth quarter were $44.0 million, compared to $47.4 million for the third quarter of 2019, and $41.5 million for the fourth quarter of 2018. Total revenues for the full year 2019 were $170.4 million, compared to $157.1 million for the same period of 2018. Adjusted earnings before interest, income taxes, depreciation and amortization (Services adjusted EBITDA) for the quarter ended December 31, 2019 was $2.2 million, compared to $3.7 million for the quarter ended September 30, 2019, and $3.2 million for the quarter ended December 31, 2018. Services adjusted EBITDA for the full year 2019 was $6.4 million, compared to $6.2 million for the prior year period. Additional details regarding the non-GAAP measure Services adjusted EBITDA may be found in Exhibits F and G.
  • The company recorded a pre-tax, non-cash impairment of goodwill and other acquired intangible assets in the fourth quarter of 2019 of $18.5 million related to its previously announced sale of Clayton Services, which closed on January 21, 2020. The sale is not expected to have a material net impact on Radian’s future financial results.
  • Other operating expenses were $80.9 million in the fourth quarter of 2019, compared to $76.4 million in the third quarter of 2019, and $77.3 million in the fourth quarter of 2018. Other operating expenses were $306.1 million for the year ended December 31, 2019, compared to $280.8 million for the year ended December 31, 2018.

    • The increase in the fourth quarter of 2019, compared to the fourth quarter of 2018, was driven primarily by increased incentive compensation expense based on 2019 performance.
    • The increase for the full year 2019, compared to the full year 2018, was driven primarily by increased compensation expense, including performance-based incentive awards, as well as ongoing investments in our technology systems.

CAPITAL AND LIQUIDITY UPDATE

The company remains focused on optimizing its capital position, enhancing its return on capital, and increasing its financial flexibility.

Radian Group

  • As of December 31, 2019, Radian Group maintained $652.6 million of available liquidity. Total liquidity, which includes the company’s $267.5 million unsecured revolving credit facility, was $920.1 million as of December 31, 2019.
  • During the fourth quarter of 2019, Radian repurchased approximately 1.1 million shares, or approximately $25 million of Radian Group common stock, including commissions. For the full year 2019, the company repurchased 13.5 million shares of Radian Group common stock at a total cost of $300.2 million, including commissions. In addition, in January 2020, the company purchased an additional 381,331 shares, or approximately $9.4 million of Radian Group common stock, including commissions. As of January 31, 2020, purchase authority of up to $140.6 million remained available under this program.
  • After consideration of the shares repurchased after quarter end and the net impact of the intercompany capital actions described below, Radian Group’s available liquidity would have increased by approximately $256 million relative to the amount as of December 31, 2019.

Radian Guaranty and Radian Reinsurance

  • At December 31, 2019, Radian Guaranty’s Available Assets under the current PMIERs financial requirements totaled approximately $3.6 billion, resulting in excess available resources or a “cushion” of $822 million, or 29%, over its Minimum Required Assets of $2.8 billion.
  • The company continues to focus on effectively managing its capital position in a cost-efficient manner, improving its return on capital and proactively managing the retained mix of single-premium business in its total MI portfolio. In January 2020, Radian Guaranty entered into a new quota share reinsurance arrangement for single-premium MI business (Single Premium QSR) with a panel of eight third-party reinsurance providers in order to cede new single-premium MI business. The terms of the new Single Premium QSR include a 65 percent cession of business written in 2020 and 2021. Other terms of the new arrangement are also similar to those in the company’s existing 2018 Single Premium QSR transaction. The company’s related PMIERs credit under this new program remains subject to GSE approval.
  • As previously announced, in February 2020, Radian Guaranty entered into its third fully collateralized mortgage insurance-linked note (ILN) transaction, in which the company obtained $488 million of credit risk protection from Eagle Re 2020-1 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 Guaranty.
  • In connection with the company’s plan to streamline operations and reposition capital by eliminating the intercompany reinsurance agreement between Radian Guaranty and Radian Reinsurance, another MI subsidiary of Radian Group, the Pennsylvania Insurance Department approved the following actions during the first quarter of 2020:

    • the termination of the intercompany reinsurance agreement, resulting in the transfer of $6.0 billion in risk in force from Radian Reinsurance to Radian Guaranty;
    • a $465 million return of capital from Radian Reinsurance to Radian Group, which was paid on January 31, 2020, from Radian Reinsurance’s gross paid in and contributed surplus; and
    • the transfer of $200 million of cash and marketable securities from Radian Group to Radian Guaranty in exchange for a surplus note. The intercompany surplus note has a 3 percent interest rate and a stated maturity of January 31, 2030. The surplus note may be redeemed at any time upon 30 days prior notice, subject to the approval of the Pennsylvania Insurance Department.
  • After consideration of the ILN transaction and the net impact of the intercompany capital actions described above, Radian Guaranty’s excess of Available Assets over its Minimum Required Assets or “cushion” under PMIERs would have increased to approximately $935 million or 32 percent as of December 31, 2019, as compared to the $822 million or 29 percent reported above.

CONFERENCE CALL

Radian will discuss fourth quarter and year-end 2019 financial results in a conference call tomorrow, Thursday, February 6, 2020, 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 877.692.8955 inside the U.S., or 234.720.6979 for international callers, using passcode 147628 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: 866.207.1041 inside the U.S., or 402.970.0847 for international callers, passcode 6489036.

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 extinguishment of debt; (iii) amortization and impairment of goodwill and other acquired intangible assets; and (iv) impairment of other long-lived assets and other non-operating items, such as losses from the sale of lines of business and acquisition-related expenses. 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, Services adjusted EBITDA margin is calculated by dividing Services adjusted EBITDA by GAAP total revenue for the Services segment. Services adjusted EBITDA and Services adjusted EBITDA margin are used 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

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

 

Contacts

Emily Riley – Phone: 215.231.1035

email: [email protected]

Read full story here