Radian(US:RDN)2023-11-03 20:12PART I—FINANCIAL INFORMATION Item 1. Financial Statements (Unaudited) This section presents the unaudited condensed consolidated financial statements for Radian Group Inc. as of September 30, 2023, and for the three and nine-month periods then ended Condensed Consolidated Balance Sheets As of September 30, 2023, Radian Group's total assets increased to $7.38 billion from $7.06 billion at year-end 2022, primarily driven by growth in investments and mortgage loans held for sale Condensed Consolidated Balance Sheet Highlights (Unaudited) | (In thousands) | September 30, 2023 | December 31, 2022 | | :--- | :--- | :--- | | Total Assets | $7,378,682 | $7,063,729 | | Total Investments | $5,885,652 | $5,693,491 | | Mortgage loans held for sale | $138,289 | $3,549 | | Total Liabilities | $3,225,783 | $3,144,402 | | Senior notes | $1,416,687 | $1,413,504 | | Total Stockholders' Equity | $4,152,899 | $3,919,327 | Condensed Consolidated Statements of Operations For the third quarter of 2023, Radian reported net income of $156.6 million, a decrease from $198.3 million in Q3 2022, primarily due to a smaller benefit from the provision for losses Consolidated Statements of Operations Highlights (Unaudited) | (In thousands, except per-share amounts) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | Total Revenues | $313,533 | $296,189 | $914,566 | $876,002 | | Net Premiums Earned | $240,262 | $240,222 | $686,929 | $748,304 | | Net Investment Income | $68,825 | $51,414 | $192,228 | $136,567 | | Provision for Losses | ($8,135) | ($96,964) | ($46,696) | ($294,640) | | Net Income | $156,582 | $198,280 | $460,426 | $580,604 | | Diluted EPS | $0.98 | $1.20 | $2.86 | $3.34 | Notes to Unaudited Condensed Consolidated Financial Statements The notes provide detailed explanations of the company's business segments, accounting policies, and financial statement line items, including segment performance and investment portfolio composition - The company operates through two reportable business segments: Mortgage (private mortgage insurance and credit risk management) and homegenius (title, real estate, and technology services) - Total direct primary mortgage insurance in force (IIF) was $269.5 billion as of September 30, 2023, up from $261.0 billion at December 31, 202231 - The company uses adjusted pretax operating income as its primary measure to evaluate segment performance, which excludes items like certain investment gains/losses and amortization of acquired intangibles5354 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations This section provides management's perspective on the company's financial condition and results of operations, detailing the impact of the macroeconomic environment on its segments Overview Management discusses the current operating environment, characterized by high inflation and interest rates, which has negatively impacted the housing market but benefited persistency rates and net investment income - The high interest rate environment has reduced housing market activity and refinance demand, leading to a 24% decrease in NIW for the first nine months of 2023 compared to 2022195196 - Higher interest rates have increased policy persistency, contributing to growth in Insurance in Force (IIF) and favorably impacting future premium earnings196 - The homegenius segment has experienced ongoing losses due to declining revenues caused by the sharp drop in mortgage purchase and refinance volumes199 - In October 2023, Radian entered into two new excess-of-loss (XOL) reinsurance agreements, providing an additional $599 million in combined coverage ($353 million with Eagle Re 2023-1 Ltd. and $246 million with a panel of reinsurers)208209 Mortgage Insurance Portfolio New Insurance Written (NIW) declined due to higher mortgage rates, but Insurance-in-Force (IIF) grew to $269.5 billion, driven by a significant increase in the 12-month persistency rate to 83.6% New Insurance Written (NIW) | ($ in millions) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | Nine Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2022 | | :--- | :--- | :--- | :--- | :--- | | NIW | $13,922 | $17,616 | $42,076 | $55,134 | Insurance in Force (IIF) and Persistency | ($ in millions, except rates) | September 30, 2023 | December 31, 2022 | September 30, 2022 | | :--- | :--- | :--- | :--- | | Primary IIF | $269,511 | $260,994 | $259,121 | | Primary RIF | $69,298 | $66,094 | $65,288 | | Persistency Rate (12 months) | 83.6% | 79.6% | 75.9% | - As of September 30, 2023, 72% of the company's primary Risk in Force (RIF) is subject to some form of risk distribution198 - This figure increases to 79% when including the October 2023 transactions198 Results of Operations—Consolidated Consolidated net income for Q3 2023 was $156.6 million, down from $198.3 million in Q3 2022, primarily due to a smaller benefit from the provision for losses Reconciliation to Adjusted Pretax Operating Income | (In thousands) | Three Months Ended Sep 30, 2023 | Nine Months Ended Sep 30, 2023 | | :--- | :--- | :--- | | Consolidated pretax income (GAAP) | $200,983 | $587,670 | | Less: Net gains on investments | ($8,838) | ($3,664) | | Less: Amortization of intangibles | ($1,371) | ($4,112) | | Less: Other non-operating items | $737 | $753 | | Total adjusted pretax operating income (Non-GAAP) | $210,455 | $594,693 | - The provision for losses decreased from a $97.0 million benefit in Q3 2022 to an $8.1 million benefit in Q3 2023, primarily due to a reduction in favorable development on prior period defaults235240 - Net investment income increased to $68.8 million in Q3 2023 from $51.4 million in Q3 2022, driven by higher market interest rates235238 Results of Operations—Mortgage The Mortgage segment reported adjusted pretax operating income of $218.6 million for Q3 2023, down from $295.7 million in Q3 2022, mainly due to a smaller benefit from the provision for losses Mortgage Segment - Summary Results of Operations | (In thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total Revenues | $288,649 | $281,033 | | Net Premiums Earned | $236,801 | $235,197 | | Total Expenses | $70,048 | ($14,642) | | Provision for Losses | ($8,257) | ($97,493) | | Adjusted Pretax Operating Income | $218,601 | $295,675 | - Favorable reserve development on prior period defaults was $54.9 million in Q3 2023, significantly lower than the $136.7 million benefit in Q3 2022, driving the change in the provision for losses278 - New primary defaults increased by 16% in Q3 2023 compared to Q3 2022, rising from 9,601 to 11,156, consistent with portfolio seasoning and growth280284 Results of Operations—homegenius The homegenius segment reported an adjusted pretax operating loss of ($20.9) million in Q3 2023, an improvement from a ($25.5) million loss in Q3 2022, driven by lower operating expenses despite declining revenues homegenius Segment - Summary Results of Operations | (In thousands) | Three Months Ended Sep 30, 2023 | Three Months Ended Sep 30, 2022 | | :--- | :--- | :--- | | Total Revenues | $14,707 | $25,083 | | Services Revenue | $10,723 | $19,812 | | Total Expenses | $35,639 | $50,619 | | Cost of Services | $8,714 | $18,344 | | Other Operating Expenses | $26,803 | $31,840 | | Adjusted Pretax Operating Loss | ($20,932) | ($25,536) | - The decrease in the operating loss was primarily due to a reduction in total expenses to $35.6 million from $50.6 million, reflecting cost management actions302307308 Results of Operations—All Other The 'All Other' category reported adjusted pretax operating income of $12.8 million in Q3 2023, up from $2.6 million in Q3 2022, primarily due to higher net investment income at the holding company - Adjusted pretax operating income for All Other increased to $12.8 million in Q3 2023 from $2.6 million in Q3 2022312 - The improvement was mainly due to a rise in net investment income to $18.0 million from $6.3 million, reflecting higher interest rates and increased investment balances at the holding company312313 Liquidity and Capital Resources Radian Group maintained a strong liquidity position with $1.0 billion in available cash and liquid investments, and Radian Guaranty remained compliant with all regulatory capital requirements - Radian Group (holding company) had $1.0 billion in available, unrestricted cash and liquid investments as of September 30, 2023321 - Radian Guaranty's Available Assets under PMIERs were $5.8 billion, resulting in a PMIERs Cushion of $1.7 billion, or 41% over its Minimum Required Assets345 - Radian Guaranty paid $300 million in ordinary dividends ($100 million per quarter) to Radian Group in the first nine months of 2023322349 - The company repurchased 2.8 million shares for $70 million and paid $111 million in dividends to common stockholders during the first nine months of 2023330331 Item 3. Quantitative and Qualitative Disclosures About Market Risk The company states that its market risk exposures, primarily related to interest rate and credit spread risk in its investment portfolio, have not materially changed from those disclosed in its 2022 Form 10-K - The company's market risk exposures as of September 30, 2023, have not materially changed from those identified in the 2022 Form 10-K359 Item 4. Controls and Procedures Management, including the CEO and CFO, evaluated the company's disclosure controls and procedures and concluded they were effective as of September 30, 2023, with no material changes in internal control over financial reporting - The CEO and CFO concluded that as of September 30, 2023, the company's disclosure controls and procedures were effective361 - No changes in internal control over financial reporting occurred during Q3 2023 that materially affected, or are reasonably likely to materially affect, internal controls362 PART II—OTHER INFORMATION Item 1. Legal Proceedings The company is routinely involved in various legal actions and regulatory proceedings in the ordinary course of business, with management not expecting a material adverse effect on financial condition or results of operations - Management does not expect currently pending or threatened legal actions to have a material adverse effect on the company's consolidated financial condition or results of operations161363 Item 1A. Risk Factors The company reports that there have been no material changes to its risk factors from those previously disclosed in its 2022 Form 10-K - There have been no material changes to the risk factors from those disclosed in the 2022 Form 10-K364 Item 2. Unregistered Sales of Equity Securities, Use of Proceeds, and Issuer Purchases of Equity Securities During Q3 2023, the company did not sell any unregistered equity securities, but purchased 1.9 million shares for approximately $50 million under its repurchase program, with $230 million remaining available Issuer Purchases of Equity Securities (Q3 2023) | Period | Total Shares Purchased | Average Price Paid per Share | Approx. Dollar Value Remaining in Program | | :--- | :--- | :--- | :--- | | Jul 2023 | 3,630 | $24.88 | $280,000,000 | | Aug 2023 | 1,882,874 | $26.71 | $230,000,000 | | Sep 2023 | 4,142 | $27.23 | $230,000,000 | | Total Q3 | 1,890,646 | - | $230,000,000 | - In January 2023, the board approved a $300 million share repurchase program, which expires in January 2025368 - During Q3 2023, 1.9 million shares were purchased under this program368 Item 5. Other Information The company reports that none of its directors or officers adopted or terminated any Rule 10b5-1 trading arrangement or non-Rule 10b5-1 trading arrangement during the third quarter of 2023 - No directors or officers adopted or terminated a Rule 10b5-1 trading plan during the reporting period370 Item 6. Exhibits This section lists the exhibits filed with the Form 10-Q, including amendments to master repurchase agreements, an amended employment agreement for the CEO, and required certifications