Radian(RDN) - 2023 Q2 - Quarterly Report

PART I—FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents Radian Group Inc.'s unaudited condensed consolidated financial statements and accompanying notes Condensed Consolidated Financial Statements This section provides a snapshot of the company's financial health, detailing assets, liabilities, equity, and net income Condensed Consolidated Balance Sheet Highlights (As of June 30, 2023) | Metric | Amount (in thousands) | | :--- | :--- | | Total Investments | $5,895,871 | | Total Assets | $7,306,543 | | Total Liabilities | $3,135,707 | | Total Stockholders' Equity | $4,170,836 | Condensed Consolidated Statement of Operations Highlights | Metric (in thousands, except per-share) | Q2 2023 | Q2 2022 | H1 2023 | H1 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $290,413 | $286,833 | $601,033 | $579,813 | | Pretax Income | $182,676 | $259,880 | $386,687 | $494,020 | | Net Income | $146,087 | $201,193 | $303,844 | $382,324 | | Diluted EPS | $0.91 | $1.15 | $1.89 | $2.16 | - Net cash provided by operating activities for the six months ended June 30, 2023 was $189.2 million, compared to $176.9 million for the same period in 2022[27] Notes to Unaudited Condensed Consolidated Financial Statements These notes provide detailed explanations of financial statements, covering segments, accounting, investments, reinsurance, and capital - The company operates through two reportable business segments: Mortgage (private mortgage insurance and credit risk management) and homegenius (title, real estate, and technology services)[28][29][33] - The Mortgage segment's adjusted pretax operating income was $197.8 million in Q2 2023, down from $316.5 million in Q2 2022. The homegenius segment reported an adjusted pretax operating loss of $24.4 million in Q2 2023, compared to a loss of $17.7 million in Q2 2022[57] - In Q2 2023, the company incurred $21 million in additional ceded premiums related to tender offers by Eagle Re 2019-1 Ltd. and Eagle Re 2020-1 Ltd. to terminate portions of their reinsurance agreements[96][114][115] - As of June 30, 2023, Radian Guaranty was in compliance with all PMIERs financial requirements, with a PMIERs cushion of $1.7 billion, or 41% over its Minimum Required Assets[179][332] Management's Discussion and Analysis of Financial Condition and Results of Operations Management discusses the company's financial condition and operating results, highlighting economic impacts on key metrics and capital - The current economic environment of high inflation and interest rates has negatively impacted NIW and homegenius revenues, but positively impacted persistency rates and net investment income[191] - New Insurance Written (NIW) for the first half of 2023 was $28.2 billion, a 25% decrease from the first half of 2022, due to reduced housing market activity[192][204] - As of June 30, 2023, 71% of the company's primary risk in force (RIF) is subject to some form of risk distribution, enhancing financial strength and flexibility[196] - Radian Group (holding company) had available liquidity of $1.0 billion in unrestricted cash and liquid investments as of June 30, 2023[309] Mortgage Insurance Portfolio This section details the mortgage insurance portfolio, including NIW, IIF, persistency rates, and risk distribution strategies New Insurance Written (NIW) | Period | NIW ($ in millions) | YoY Change | | :--- | :--- | :--- | | Q2 2023 | $16,946 | -11% | | H1 2023 | $28,191 | -25% | Insurance in Force (IIF) and Persistency | Metric | June 30, 2023 | Dec 31, 2022 | June 30, 2022 | | :--- | :--- | :--- | :--- | | Primary IIF ($ in billions) | $266.9 | $261.0 | $254.2 | | 12-month Persistency Rate | 82.8% | 79.6% | 71.7% | - Risk distribution programs reduced the company's PMIERs Minimum Required Assets by $1.08 billion as of June 30, 2023, representing 21.1% of the gross requirement[224] Results of Operations—Consolidated Consolidated net income decreased in Q2 2023 due to lower premiums and services revenue, partially offset by investment income Consolidated Results of Operations (Q2 2023 vs Q2 2022) | Metric (in thousands) | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Net Premiums Earned | $213,429 | $253,892 | | Services Revenue | $11,797 | $27,281 | | Net Investment Income | $64,182 | $46,957 | | Provision for Losses | $(21,632) | $(113,922) | | Net Income | $146,087 | $201,193 | - The decrease in net premiums earned was primarily due to higher ceded premiums related to reinsurance tender offers in the mortgage segment[231] - The provision for losses provided a smaller benefit compared to the prior year, driven by a reduction in favorable reserve development on prior period defaults[236] Results of Operations—Mortgage The Mortgage segment's adjusted pretax operating income declined due to lower net premiums earned and a reduced loss provision Mortgage Segment Results (Q2 2023 vs Q2 2022) | Metric (in thousands) | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Net Premiums Earned | $210,732 | $246,909 | | Provision for Losses | $(21,623) | $(114,179) | | Adjusted Pretax Operating Income | $197,750 | $316,520 | - Ceded premiums earned increased significantly, driven by a $21 million cost related to tender offers for mortgage insurance-linked notes under the Excess-of-Loss Program[257][260][265] - The number of primary loans in default at quarter-end was 19,880, down from 21,913 at the end of 2022, with new defaults in H1 2023 totaling 20,399[277][278] Results of Operations—homegenius The homegenius segment's adjusted pretax operating loss widened due to sharp revenue declines from reduced title and real estate services homegenius Segment Results (Q2 2023 vs Q2 2022) | Metric (in thousands) | Q2 2023 | Q2 2022 | | :--- | :--- | :--- | | Total Revenues | $14,806 | $32,343 | | Cost of Services | $10,114 | $20,800 | | Adjusted Pretax Operating Loss | $(24,421) | $(17,690) | - The decline in revenue was primarily due to a decrease in new title policies and lower real estate services revenue, reflecting the sharp drop in industry-wide refinance volumes[291][293][294] - The segment incurred $2.0 million in severance expenses during Q2 2023 due to further headcount reductions in response to the challenging macroeconomic environment[297] Liquidity and Capital Resources This section details the company's strong liquidity, capital resources, debt-to-capital ratio, and book value per share - The holding company, Radian Group, had $1.0 billion in available liquidity as of June 30, 2023, and total liquidity of $1.3 billion including its undrawn credit facility[309] - Radian Guaranty paid two ordinary dividends of $100 million each to Radian Group in March and May 2023[310][335] Capitalization and Key Ratios | Metric | June 30, 2023 | Dec 31, 2022 | | :--- | :--- | :--- | | Total Debt (in thousands) | $1,415,610 | $1,413,504 | | Stockholders' Equity (in thousands) | $4,170,836 | $3,919,327 | | Debt-to-Capital Ratio | 25.3% | 26.5% | | Book Value Per Share | $26.51 | $24.95 | - Radian Guaranty's PMIERs cushion was $1.7 billion (41% over minimum required) as of June 30, 2023[332] Quantitative and Qualitative Disclosures About Market Risk The company's market risk exposures, primarily interest rate and credit spread risk, remain materially unchanged from 2022 - The company's primary market risks are changes in interest rates and credit spreads, which affect the fair value of its investment portfolio[344] - There were no material changes to the company's market risk exposures at June 30, 2023, compared to those identified in the 2022 Form 10-K[345] Controls and Procedures Management concluded disclosure controls were effective as of June 30, 2023, with no material changes to internal controls - The CEO and CFO concluded that as of June 30, 2023, the company's disclosure controls and procedures were effective[347] - No changes occurred during Q2 2023 that materially affected, or are reasonably likely to materially affect, the company's internal control over financial reporting[348] PART II—OTHER INFORMATION Legal Proceedings The company is involved in routine legal and regulatory matters, with no expected material adverse effect on financial condition - The company is routinely involved in legal actions and regulatory matters arising in the ordinary course of business[349] - Management believes the outcome of currently pending legal proceedings will not have a material adverse effect on the company's financial condition[158] Risk Factors No material changes to the company's risk factors have occurred since the filing of the 2022 Form 10-K - No material changes to risk factors have occurred since the filing of the 2022 Form 10-K[350] Unregistered Sales of Equity Securities and Use of Proceeds The company repurchased shares in Q2 2023, with $280 million remaining available under the repurchase program Share Repurchase Activity (Q2 2023) | Month | Total Shares Purchased | Avg. Price Paid | Shares Purchased Under Program | | :--- | :--- | :--- | :--- | | April 2023 | 239,496 | $21.93 | 228,586 | | May 2023 | 525,773 | $24.95 | — | | June 2023 | 2,216 | $25.96 | — | | Total | 767,485 | | 228,586 | - The total number of shares purchased includes 538,899 shares tendered by employees for tax withholding on vested restricted stock awards[354] - As of June 30, 2023, $280 million remained available under the share repurchase program authorized in January 2023, which expires in January 2025[355] Other Information No directors or officers adopted or terminated Rule 10b5-1 or non-Rule 10b5-1 trading arrangements during the quarter - No directors or officers adopted or terminated a Rule 10b5-1 or non-Rule 10b5-1 trading arrangement during the reporting period[357] Exhibits This section lists exhibits filed with Form 10-Q, including compensation agreements, credit amendments, and certifications - Exhibits filed include executive officer restricted stock unit grant agreements, amendments to credit and master repurchase agreements, and CEO/CFO certifications[360]