Radian Group Inc. · NYSE:RDN
Radian — Q3 2017 Earnings Presentation
31 slides from Radian's earnings presentation, 2017
Slide 1: Financial Results Q3 2017
Financial Results Q3 2017 NYSE: RDN www.radian.biz 1
Slide 2: Safe Harbor Statements
SAFE HARBOR STATEMENTS All statements in this presentation that address events, • our ability to successfully execute and implement our capital plans • legal and regulatory claims, assertions, actions, reviews, audits, developments or results that we expect or anticipate may occur in and to maintain
Slide 3: Who Is Radian?
WHO IS RADIAN? Radian Group Inc., headquartered in Philadelphia, provides Q3 2017 REVENUE private mortgage insurance, risk management products and real estate services to financial institutions through two Services business segments: Fee-Based 15% Mortgage Insurance: Provided through its principal m
Slide 4: Q3 Highlights
Q3 HIGHLIGHTS $65.1 million 5% increase $15.1 billion of new insurance written, Net Income Includes pretax amounts of $45.8 million of compared to $14.3 billion in Q2 2017 loss on induced conversion and debt In New Insurance $0.30 extinguishment and $12.0 million of Written 3% decrease compared to $
Slide 5: Net Income (Loss)
NET INCOME (LOSS) Q2 2017 to Q3 2017 GAAP Diluted Net Income (Loss) Per Share $0.60 $0.61 $0.02 $0.50 $0.40 $0.13 $0.03 $0.30 $0.30 $0.06 $0.04 $0.20 $0.10 $- $(0.10) $(0.13) $(0.20) Q2 Impairment Net Premiums Loss on Provision for Restructuring Other Q2 2017 Q3 2017 of Goodwill and Earned Extinguis
Slide 6: Book Value
BOOK VALUE Comparison of Book Value Per Share $14.00 $13.88 $0.05 $13.47 $0.26 $13.00 $0.91 $0.39 $12.00 $11.77 Goodwill Intangible Assets $0.94 $11.00 Tangible Book $13.57 Value (1) $0.45 $10.00 $12.17 $10.38 $9.00 $8.00 Q3 2015 Q3 2016 Q3 2017 1) Tangible book value per share, as used in this pres
Slide 7: Financial Highlights
FINANCIAL HIGHLIGHTS Radian Group Inc. Consolidated ($ in millions, except per-share amounts) September 30, 2017 June 30, 2017 March 31, 2017 Total Assets $5,844 $5,817 $5,828 Loss Reserves $556 $652 $726 Unearned Premiums $718 $702 $685 Long-Term Debt $1,027 $989 $1,009 Stockholders' Equity $2,988
Slide 8: Mortgage Insurance
MORTGAGE INSURANCE
Slide 9: Improved Composition of MI Portfolio
IMPROVED COMPOSITION OF MI PORTFOLIO 2006-2007 (HARP) As of September 30, 2017, 91% of 2006-2007 (Non-HARP) 3.2% mortgage insurance primary risk in 4.6% force consists of new business Other Vintages (Non-HARP) written after 2008, including HARP 4.5% volume Other Vintages (HARP) 2.9% $50.2 Billion Ri
Slide 10: Improved Composition of MI Portfolio: Risk in Force by FICO and LTV
IMPROVED COMPOSITION OF MI PORTFOLIO Risk in Force by FICO and LTV Primary RIF Distribution by FICO SCORE Primary RIF Distribution by LTV 100% 100% 11% 9% 17% 22% 26% 24% 80% 42% 80% 59% 38% 35% 53% 60% 33% 60% 31% 36% 40% 33% 40% 37% 32% 33% 39% 31% 30% 31% 20% 20% 20% 13% 9% 14% 12% 8% 9% 7% 5% 1%
Slide 11: Improved Composition of MI Portfolio: Other Risk in Force Characteristics
IMPROVED COMPOSITION OF MI PORTFOLIO Other Risk in Force Characteristics 1% 1% Primary RIF Distribution by RISK GRADE Primary RIF Distribution by OCCUPANCY STATUS 100% 100% 6% 2% 2% 10% 4% 4% 2% 13% 3% 9% 2% 4% 80% 18% 90% 19% 97% 97% 94% 95% 85% 92% 72% 68% 60% 80% 2003 2007 2011 Q3 2017 2003 2007
Slide 12: Premium Yields
PREMIUM YIELDS (in basis points) Mortgage Insurance Premium Yield Trends Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016 In Force Portfolio Yield (1) 48.4 48.7 48.9 49.4 50.7 Single Premium Cancellations (2) 3.2 2.8 2.2 5.9 6.8 Total Direct Yield 51.6 51.5 51.1 55.3 57.5 Ceded Earned Premiums, Incl. Profit
Slide 13: First-Lien Mortgage Insurance
FIRST-LIEN MORTGAGE INSURANCE 2017 Performance by Vintage ($ in millions) NINE MONTHS ENDED SEPTEMBER 30, 2017 Vintage Premiums Earned (1) Incurred Losses (1) Net 2008 & Prior $121.6 $76.8 $44.8 Pre-2009 portfolio is contributing to 2009 $6.8 $0.6 $6.2 earnings. 2010 $5.4 $0.2 $5.2 2011 $11.0 $0.8 $
Slide 14: Primary Mortgage Insurance
PRIMARY MORTGAGE INSURANCE Cumulative Incurred Loss Ratio by Development Year CUMULATIVE INCURRED LOSS RATIO (1) 20% Vintage Dec-09 Dec-10 Dec-11 Dec-12 Dec-13 Dec-14 Dec-15 Dec-16 Sep-17 18% 2009 6.1% 7.0% 13.7% 17.4% 19.0% 18.3% 17.6% 17.6% 17.5% 16% 2009 2010 2010 1.2% 3.3% 6.5% 7.7% 7.5% 7.2% 7.
Slide 15: Components of Provisions for Losses
COMPONENTS OF PROVISIONS FOR LOSSES ($ in millions) THREE MONTHS ENDED Sep 30, 2017 Jun 30, 2017 Mar 31, 2017 Dec 31, 2016 Sep 30, 2016 Current period defaults (1) $50.3 $45.3 $51.4 $58.5 $57.6 Prior period defaults (2) (14.0) (28.2) (4.3) (4.1) (1.8) Second-lien premium deficiency reserve & other (
Slide 16: Primary Loans in Default
PRIMARY LOANS IN DEFAULT FORECLOSURE September 30, 2017 RESERVE FOR TOTAL STAGE DEFAULTED CURE % DURING Q3 % OF RESERVE ($ in thousands) LOSSES LOANS MISSED PAYMENTS # % # % $ % 3 Payments or Fewer 9,344 39.2% 151 33.3% $88,507 17.9% 4 to 11 Payments 6,115 25.7 427 20.7 102,692 20.8 12 Payments or M
Slide 17: Default Rollforward
DEFAULT ROLLFORWARD Primary Insurance in Force Q3 2017 Q2 2017 Q1 2017 Q4 2016 Q3 2016 Beginning Default Inventory 23,755 25,793 29,105 29,530 29,827 Pre-2009 New Defaults 6,331 5,714 6,179 7,589 7,642 2009+ New Defaults 3,752 2,856 3,009 3,340 2,817 Total New Defaults (1) 10,083 8,570 9,188 10,929
Slide 18: Mortgage and Real Estate Services
MORTGAGE AND REAL ESTATE SERVICES 18
Slide 19: What Are Mortgage & Real Estate Services?
WHAT ARE MORTGAGE & REAL ESTATE SERVICES? Advanced automated valuation models, broker price opinions and technology Customized real estate owned asset solutions to monitor loan portfolio management and single-family rental performance, acquire and track non- component services Clayton and its subsid
Slide 20: Mortgage and Real Estate Services Revenue
MORTGAGE AND REAL ESTATE SERVICES REVENUE ($ in millions) $60 Eurorisk $53 $50 $48 Surveillance $40 $40 $41 $40 REO management Real estate valuation and $30 component services Loan review, underwriting and $20 due diligence $10 $0 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 20
Slide 21: Growth Opportunities
GROWTH OPPORTUNITIES Our Product and Service Offerings Span the Mortgage Value Chain Radian Guaranty provides a suite of private mortgage insurance and related risk management products and services. Clayton and its subsidiaries provide analytics and outsourced services, that currently include reside
Slide 22: Capital and Debt Structure
CAPITAL AND DEBT STRUCTURE 22
Slide 23: Capital Structure
CAPITAL STRUCTURE Total Capitalization as of September 30, 2017 In Q3 2017, conducted a tender offer and purchased a portion of the Company’s outstanding Carrying Value Principal % of Total Senior Notes due 2019, 2020, and 2021. Coupon Description ($’000) ($’000) Capitalization(1) In Q3 2017, issued
Slide 24: Debt Maturity Profile
DEBT MATURITY PROFILE ($ in millions) Principal by Year of Maturity $500 $450 $400 As of December 31, 2016 $350 Convertible Senior Notes $300 Senior Notes $250 As of September 30, 2017 $200 Convertible Senior Notes Senior Notes $150 $100 $50 $0 2017 2018 2019 2020 2021 2022 2023 2024 24
Slide 25: Consolidated Non-GAAP Financial Measures Reconciliations
Consolidated Non-GAAP Financial Measures Reconciliations 25
Slide 26: Use of Non-GAAP Financial Measures
Use of Non-GAAP Financial Measures In addition to the traditional GAAP financial measures, we have factors as market opportunities, our tax and capital profile and credit cycles and other factors. We do not view these impairment presented “adjusted pretax operating income” and “adjusted diluted net
Slide 27: Reconciliation of Consolidated Pretax Income (Loss) to Adjusted Pretax Operating Income
Reconciliation of Consolidated Pretax Income (Loss) to Adjusted Pretax Operating Income 2017 2016 ($ in thousands) Q3 Q2 Q1 Q4 Q3 Consolidated pretax income (loss) $102,814 $(35,474) $114,670 $97,796 $126,941 Less income (expense) items: Net gains (losses) on investments and other 2,480 5,331 (2,851
Slide 28: Reconciliation of Diluted Net Income (Loss) Per Share to Adjusted Diluted Net Operating Income
Reconciliation of Diluted Net Income (Loss) Per Share to Adjusted Diluted Net Operating Income Per Share 2017 2016 Q3 Q2 Q1 Q4 Q3 Diluted net income (loss) per share $0.30 $(0.13) $0.34 $0.27 $0.37 Less per-share impact of debt Items: Loss on induced conversion and debt extinguishment (0.21) (0.01)
Slide 29: Reconciliation of Book Value Per Share to Tangible Book Value Per Share
Reconciliation of Book Value Per Share to Tangible Book Value Per Share(1) 2017 2016 Q3 Q2 Q1 Q4 Q3 Book value per share $13.88 $13.54 $13.58 $13.39 $13.47 Less: Goodwill and other intangible assets, net per share 0.31 0.32 1.27 1.29 1.30 Tangible book value per share $13.57 $13.22 $12.31 $12.10 $12
Slide 30: Reconciliation of Net Income (Loss) to Services Adjusted EBITDA
Reconciliation of Net Income (Loss) to Services Adjusted EBITDA 2017 2016 ($ in thousands) Q3 Q2 Q1 Q4 Q3 Net income (loss) $65,142 $(27,342) $76,472 $61,089 $82,803 Less income (expense) items: Net gains (losses) on investments and other financial 2,480 5,331 (2,851) (38,773) 7,711 instruments Loss
Slide 31: Radian
RADIAN Ensuring the American Dream®