Radian Group Inc. · NYSE:RDN
Radian — Q3 2016 Earnings Presentation
29 slides from Radian's earnings presentation, 2016
Slide 1: Financial Results Q3 2016
Financial Results Q3 2016 NYSE: RDN www.radian.biz 1
Slide 2: Safe Harbor Statements
SAFE HARBOR STATEMENTS All statements in this report that address events, developments or other applicable requirements imposed by the Federal Housing inquiries and investigations that could results in adverse judgments, results that we expect or anticipate may occur in the future are Finance Agency
Slide 3: Who Is Radian?
WHO IS RADIAN? Radian Group Inc., headquartered in Philadelphia, provides Q3 2016 REVENUE private mortgage insurance, risk management products and real estate services to financial institutions through two Services business segments: Fee-Based 16% Mortgage Insurance: Provided through its principal m
Slide 4: Q3 Highlights
Q3 HIGHLIGHTS $0.37 diluted net income per share Purchased $21 million face value of $82.8 million Includes $7.7 million of net gains on investments and other financial instruments $482.5 million outstanding 2.25% Convertible Senior Notes Net Income Available Holding due 2019 Includes loss on induce
Slide 5: Q3 Highlights
Q3 HIGHLIGHTS New business written after 2008 represents Total number of primary defaulted loans decreased by 18% from Q3 2015 87% 87% of primary risk in force 3.3% New business written after 2008, excluding Default Rate Primary mortgage insurance default rate Primary Risk in Force decreased to 3.3%
Slide 6: Net Income
NET INCOME Q2 2016 to Q3 2016 GAAP Diluted Net Income Per Share $0.50 $0.01 $0.03 $0.44 $0.40 $0.07 $0.02 $0.37 $0.04 $0.02 $0.30 Q2 2016 Net Premiums Services Gross Change in Loss on Induced Change in Other Q3 2016 Earned Profit Gains on Conversion and Loss Provision Investments Debt Extinguishment
Slide 7: Book Value
BOOK VALUE Q2 2016 to Q3 2016 GAAP Book Value Per Share (1) $14.00 $0.39 $0.01 $0.01 $13.47 $0.03 $13.09 $13.00 $12.00 Q2 2016 Net Income Change in Unrealized Equity Impact of Other Q3 2016 Gains in Other Convertible Debt Comprehensive Purchase Income 1) Activity is based on beginning-of-period shar
Slide 8: Financial Highlights
FINANCIAL HIGHLIGHTS Radian Group Inc. Consolidated ($ in millions, except per share amounts) September 30, 2016 December 31, 2015 September 30, 2015 Total Assets $6,049.8(1) $5,642.1 $5,760.9 Loss Reserves $821.9 $976.4 $1,098.6 Unearned Premiums $681.0 $680.3 $676.9 Long-Term Debt $1,067.7 $1,219.
Slide 9: Mortgage Insurance
MORTGAGE INSURANCE 9
Slide 10: Improved Composition of MI Portfolio
IMPROVED COMPOSITION OF MI PORTFOLIO (1) 2006-2007 (HARP) NIW since 2009 and HARP volume 2006-2007 (Non-HARP) 4.1% combined now represents 87% of Radian’s mortgage insurance 6.5% Other Vintages (Non-HARP) primary risk in force as of Q3 2016 6.5% Other Vintages (HARP) 3.8% MORTGAGE INSURANCE PORTFOLI
Slide 11: Improved Composition of MI Portfolio
IMPROVED COMPOSITION OF MI PORTFOLIO Risk in Force by FICO and LTV Primary RIF Distribution by FICO Score Primary RIF Distribution by LTV 100% 100% 11% 7% 17% 22% 26% 24% 80% 42% 80% 57% 38% 35% 52% 60% 33% 60% 31% 36% 40% 33% 40% 37% 32% 31% 33% 39% 30% 33% 20% 20% 20% 13% 10% 14% 12% 8% 9% 8% 5% 2
Slide 12: Improved Composition of MI Portfolio
IMPROVED COMPOSITION OF MI PORTFOLIO Other Risk in Force Characteristics Primary RIF Distribution by LOAN GRADE Primary RIF Distribution by OCCUPANCY STATUS 100% 2% 100% 1% 6% 3% 2% 10% 4% 4% 2% 13% 3% 9% 2% 4% 80% 18% 90% 19% 95% 97% 94% 95% 85% 92% 72% 68% 60% 80% 2003 2007 2011 Q3 2016 2003 2007
Slide 13: First-Lien Mortgage Insurance: 2016 Performance by Vintage
FIRST-LIEN MORTGAGE INSURANCE 2016 Performance by Vintage (in millions) 9 MONTHS ENDED 9/30/2016 3 MONTHS ENDED 9/30/2016 Vintage Premiums Earned (1) Incurred Losses(1) Net Net 2005 & Prior $41.4 $30.8 $10.6 ($0.1) Today, even 2006 $31.3 $25.5 $5.8 $1.7 legacy vintages are contributing 2007 $60.6 $5
Slide 14: Primary Mortgage Insurance
PRIMARY MORTGAGE INSURANCE Cumulative Incurred Loss Ratio by Development Year 20% 2009 CUMULATIVE INCURRED LOSS RATIO 2010 18% Vintage Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Sep-16 2011 16% 2012 2009 6.1% 7.0% 13.7% 17.4% 19.0% 18.3% 17.6% 17.7% 2013 2010 1.2% 3.3% 6.5% 7.7% 7.5% 7.2% 7.2%
Slide 15: Components of Provisions for Losses
COMPONENTS OF PROVISIONS FOR LOSSES ($ in millions) 3 MONTHS ENDED Sept 30, 2016 June 30, 2016 Mar 31, 2016 Dec 31, 2015 Sept 30, 2015 Current period defaults (1) $57.6 $50.9 $56.2 $62.3 $66.6 Prior period defaults (2) (1.8) (1.0) (13.5) (5.2) (3.2) Second-lien premium deficiency reserve & other 0.3
Slide 16: Primary Loans in Default
PRIMARY LOANS IN DEFAULT FORECLOSURE September 30, 2016 RESERVE FOR TOTAL STAGE DEFAULTED CURE % DURING Q3 % OF RESERVE ($ in thousands) LOSSES LOANS MISSED PAYMENTS # % # % $ % 3 Payments or Fewer 9,565 32.4% 167 30.5% $97,303 14.1% 4 to 11 Payments 7,217 24.4 494 20.4 119,392 17.3 12 Payments or M
Slide 17: Default Rollforward
DEFAULT ROLLFORWARD Primary Insurance in Force Q3 2016 Q2 2016 Q1 2016 Q4 2015 Q3 2015 Beginning Default Inventory 29,827 30,869 35,303 35,875 37,676 New Defaults (1) (2) 10,459 9,544 9,571 11,650 10,698 Cures (1) (9,127) (8,750) (11,577) (9,751) (9,676) Claims Paid (3) (4) (1,615) (1,797) (2,488) (
Slide 18: Mortgage and Real Estate Services
MORTGAGE AND REAL ESTATE SERVICES 18
Slide 19: What Are Mortgage & Real Estate Services?
WHAT ARE MORTGAGE & REAL ESTATE SERVICES? Advanced Automated Valuation Models, Broker Price Opinions and technology Customized Real Estate Owned asset solutions to monitor loan portfolio management and single-family rental performance, acquire and track Non- component services Performing Loans, and
Slide 20: Mortgage and Real Estate Services Revenue
MORTAGE AND REAL ESTATE SERVICES REVENUE ($ in thousands) $50,000 Eurorisk $44,595 $43,114 $43,800 $45,000 $42,243 $39,002 Surveillance $40,000 $38,175 $34,466 $35,000 $31,532 $32,196 REO management $30,000 Real estate valuation and $25,000 (1) component services $20,000 Loan review and due diligenc
Slide 21: Growth Opportunities
GROWTH OPPORTUNITIES Our Product and Service Offerings Span the Mortgage Value Chain Radian Guaranty provides a suite of private mortgage insurance and related risk management products and services. Clayton provides real estate market risk management solutions including risk-based analytics, residen
Slide 22: Capital and Debt Structure
CAPITAL AND DEBT STRUCTURE 22
Slide 23: Capital Structure
CAPITAL STRUCTURE Total Capitalization as of September 30, 2016 Carrying Value Principal % of Total Coupon Description ($’000) ($’000) Capitalization(1) Prudent balance sheet management and strong performance has led to ratings 5.50% Senior Notes due 2019 $296,611 $300,000 7.5% upgrades. 5.25% Senio
Slide 24: Consolidated Non-GAAP Financial Measures Reconciliations
Consolidated Non-GAAP Financial Measures Reconciliations 24
Slide 25: Use of Non-GAAP Financial Measures
Use of Non-GAAP Financial Measures In addition to the traditional GAAP financial measures, we have 1. Net gains (losses) on investments and other financial instruments. amortize the cost of intangible assets over their estimated useful presented non-GAAP financial measures for the consolidated The r
Slide 26: Reconciliation of Adjusted Pretax Operating Income to Consolidated Pretax Income
Reconciliation of Adjusted Pretax Operating Income (Loss) to Consolidated Pretax Income 2016 2015 (in thousands) Q3 Q2 Q1 Q4 Q3 Adjusted pretax operating income (loss): Mortgage Insurance $142,468 $137,345 $140,132 $125,904 $115,905 Services (2,539) (5,960) (9,913) (1,797) (279) Total adjusted preta
Slide 27: Reconciliation of Adjusted Diluted Net Operating Income Per Share
Reconciliation of Adjusted Diluted Net Operating Income Per Share to Diluted Net Income Per Share 2016 2015 Q3 Q2 Q1 Q4 Q3 Adjusted diluted net operating income per share (1) $0.41 $0.38 $0.37 $0.34 $0.31 Per Share Impact of Debt Items: Loss on induced conversion and debt extinguishment (0.08) (0.01
Slide 28: Reconciliation of Services Adjusted EBITDA to Net Income
Reconciliation of Services Adjusted EBITDA to Net Income 2016 2015 (in thousands) Q3 Q2 Q1 Q4 Q3 Services adjusted EBITDA $5,031 $1,988 $(3,079) $4,197 $6,266 Allocation of corporate operating expenses to Services (2,265) (2,779) (1,751) (968) (1,567) Allocation of corporate interest expenses to Ser
Slide 29: Radian
RADIAN Ensuring the American Dream®