PHILADELPHIA, May 12, 2008 /PRNewswire-FirstCall/ -- Radian Group Inc. (the "Company") today reported net income of $195.6 million and diluted earnings per share of $2.44 for the quarter ended March 31, 2008. Book value per share at March 31, 2008 was $35.64. Excluding the impact of net unrealized gains on derivatives and hybrid securities, the Company's net operating loss was $215.2 million and the net operating loss per share was $2.69 for the quarter. "Net operating loss" and "net operating loss per share" are non-GAAP financial measures. A discussion of these measures, including a reconciliation to pretax income, is included below.
Radian's financial results for the first quarter of 2008 were significantly impacted by unrealized gains and losses on the Company's hybrid securities and derivative assets and liabilities. Credit spreads on underlying collateral, both corporate credit spreads and asset-backed spreads, widened significantly during the quarter, which resulted in large unrealized losses on these positions. Offsetting these losses, however, is the impact of a change to the Company's valuation methodology, which is adopted prospectively, that incorporates the market's perception of Radian's non- performance risk. This change in methodology is required under the provisions of SFAS No. 157. Given the significant widening of Radian's credit default swap spread over the past year, the reduction in the valuation of the Company's derivative liabilities related to non-performance risk more than offset the credit spread widening on underlying collateral for the current quarter. Below is a table with the detail of the impact on Radian's quarterly results of underlying collateral credit spread widening and the aggregate impact of incorporation of Radian's non-performance risk on our derivative instrument fair values.
1Q08 1Q07
Pretax Income $284.6 $158.2
Removal of effect of unrealized
(gains) and losses:
Hybrid Securities 55.9 3.6
Financial Guaranty credit derivatives 1,330.0 (25.1)
Mortgage Insurance domestic and intl. 32.3 12.7
credit default swaps
NIMS 50.8 (1.4)
Soft capital put options on committed (42.8) -
preferred securities
Isolated impact of SFAS No. 157 fair
value methodology change related (2,058.3) -
specifically to Radian's non-
performance risk
Pretax operating (loss) income (347.5) 148.0
Income tax (benefit) provision (132.3) 41.1
Net operating (loss) income $(215.2) $106.9
Net operating (loss) income per share $(2.69) $1.34
"We have seen the continuation of weak housing and credit markets and these conditions have impacted results in our mortgage insurance and financial guaranty businesses," said S.A. Ibrahim, Chief Executive Officer of Radian. "As previously announced, we are considering a range of alternatives to strengthen our capital position, while at the same time considering the alternatives for our financial guaranty business which offer the best long term value. Our liquidity and claims paying capabilities remain strong across both business units."
In the mortgage insurance business, paid claims during the first quarter were in line with the Company's guidance. As of March 31, 2008, Radian had $1.7 billion in mortgage insurance loss reserves. Newly written product mix in the mortgage insurance business continued to shift significantly to prime loans, with 90% of production during the first quarter made up of prime business, up from 77% during the fourth quarter.
Mr. Ibrahim continued, "By focusing on prime loans, working closely with the Government Sponsored Enterprises and managing our existing Risk-In-Force exposure, Radian will continue to address the significant challenges in the housing markets and overall economic environment."
Radian's financial guaranty business continues to maintain a strong capital position with limited exposure to vulnerable asset classes. Although new written premiums declined approximately 21% from the first quarter of 2007, reinsurance business remained strong.
Radian will discuss each of these items in its conference call today, Monday, May 12, 2008, at 10:00 a.m. Eastern time. The conference call will be broadcast live over the internet at http://www.ir.radian.biz/phoenix.zhtml?c=112301&p=irol-audioarchives or at http://www.radian.biz/ >News. The call may also be accessed by dialing 800- 230-1085 inside the U.S., or 612-288-0337 for international callers, using passcode 921836 or by referencing Radian.
A replay of the webcast will be available at 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 two and a half hours after the call ends for one week, using the following dial-in numbers and passcode: 800-475-6701 inside the U.S., or 320-365-3844 for international callers, passcode 921836.
Non-GAAP Measures
The table set forth above reconciles "net operating loss" and "net operating loss per share" to pretax income. In order to assist investors in understanding our quarterly operating results, which recently have been impacted significantly by changes in market values of our derivative and hybrid securities portfolios, we define our net operating earnings to be our GAAP pretax income, adjusted to exclude unrealized gains and losses on these portfolios that relate to market risk, as tax-affected. Net operating earnings is not a substitute for pretax income computed in accordance with GAAP, but is a useful measure of performance used by management, equity analysts and investors because it allows a more consistent period-to-period comparison of our earnings without the effects of unrealized gains and losses on derivatives and hybrid securities. The definition of operating earnings used by us may differ from definitions of operating earnings used by other companies.
Radian Group Inc. is a global credit risk management company headquartered in Philadelphia with significant operations in New York and London. Radian develops innovative financial solutions by applying its core mortgage credit risk expertise and structured finance capabilities to the credit enhancement needs of the capital markets worldwide, primarily through credit insurance products. The company also provides credit enhancement for public finance and other corporate and consumer assets on both a direct and reinsurance basis and holds strategic interests in credit-based consumer asset businesses. Additional information may be found at http://www.radian.biz/.
For trend information on all schedules, refer to Radian's quarterly financial statistics at http://www.radian.biz/investors/financial/corporate.aspx. http://www.radian.biz/investors/financial/corporate.aspx
Financial Results and Supplemental Information Contents (Unaudited)
Exhibit A: Condensed Consolidated Statements of Income
Exhibit B: Condensed Consolidated Balance Sheets
Exhibit C: Segment Information Quarter Ended March 31, 2008
Exhibit D: Segment Information Quarter Ended March 31, 2007
Exhibit E: Financial Guaranty Insurance Supplemental Information -
Quarter Ended and as of March 31, 2008
Exhibit F: Financial Guaranty Insurance Supplemental Information -
Quarter Ended and as of March 31, 2008
Exhibit G: Mortgage Insurance Supplemental Information: New Insurance
Written and Risk Written
Exhibit H: Mortgage Insurance Supplemental Information: Insurance in
Force and Risk in Force
Exhibit I: Mortgage Insurance Supplemental Information: Risk in Force by
LTV and Policy Year and Other Risk in Force
Exhibit J: Mortgage Insurance Supplemental Information: Claims and
Reserves
Exhibit K: Mortgage Insurance Supplemental Information: Defaults
Exhibit L: Mortgage Insurance Supplemental Information: Net Premiums
Written and Earned, Smart Home, Captives and Persistency
Exhibit M: Mortgage Insurance Supplemental Information: ALT A
Exhibit N: Financial Services Supplemental Information
Radian Group Inc. and Subsidiaries
Condensed Consolidated Statements of Income
Exhibit A
Quarter Ended
March 31
2008 2007
(In thousands, except per-share data)
Revenues:
Net premiums written - insurance $244,306 $248,430
Net premiums earned - insurance $241,921 $214,507
Net investment income 65,979 60,996
Net (losses) gains on securities (54,884) 13,745
Change in fair value of derivative
instruments (1) 707,809 48,417
Other income 3,614 3,818
Total revenues 964,439 341,483
Expenses:
Provision for losses 582,711 107,042
Provision for second-lien premium
deficiency 18,090 -
Policy acquisition costs 23,906 28,254
Other operating expenses 55,141 54,367
Merger expenses - 3,328
Interest expense 12,493 13,056
Total expenses 692,341 206,047
Equity in net income of affiliates 12,526 22,772
Pretax income 284,624 158,208
Income tax provision 88,986 44,741
Net income $195,638 $113,467
Diluted net income per share (2) $2.44 $1.42
(1) Includes premiums earned on derivative contracts
(2) Weighted average shares outstanding (in thousands)
Average common shares outstanding 79,930 79,428
Increase in shares-common stock
equivalents-diluted basis 110 652
Weighted average shares outstanding
(in thousands) 80,040 80,080
For Trend Information, refer to our Quarterly Financial Statistics on
Radian's (RDN) website.
Radian Group Inc. and Subsidiaries
Condensed Consolidated Balance Sheets
Exhibit B
(In thousands, except share and per- March 31 December 31
share data) 2008 2007
Assets:
Cash and investments $6,740,985 $6,611,836
Investments in affiliates 116,969 104,354
Deferred policy acquisition costs 239,400 234,955
Prepaid federal income taxes 536,343 793,486
Other assets 620,328 465,558
Total assets $8,254,025 $8,210,189
Liabilities and stockholders' equity:
Unearned premiums $1,074,589 $1,094,710
Reserve for losses and loss
adjustment expenses 1,902,128 1,598,756
Reserve for second-lien premium
deficiency 213,736 195,646
Long-term debt and other borrowings 959,244 953,524
Variable interest entity debt 100,219 -
Deferred income taxes 52,360 26,705
Derivative liabilities 703,405 1,305,665
Other liabilities 380,988 314,447
Total liabilities 5,386,669 5,489,453
Common stock 98 98
Additional paid-in capital 446,211 442,312
Retained earnings 2,375,189 2,181,191
Accumulated other comprehensive income 45,858 97,135
Total common stockholders' equity 2,867,356 2,720,736
Total liabilities and
stockholders' equity $8,254,025 $8,210,189
Book value per share $35.64 $33.83
Treasury Stock Repurchases
(Year-to-Date for Periods Presented)
Total number of shares repurchased - 398,645
Average price paid per share - $57.25
Total cost of repurchased shares - $22,822,537
Radian Group Inc. and Subsidiaries
Segment Information
Quarter Ended March 31, 2008
Exhibit C
Mortgage Financial Financial
(In thousands) Insurance Guaranty Services Total
Revenues:
Net premiums written -
insurance $211,251 $33,055 $- $244,306
Net premiums earned -
insurance $204,265 $37,656 $- $241,921
Net investment income 38,845 27,120 14 65,979
Net losses on
securities (36,733) (18,149) (2) (54,884)
Change in fair value
of derivative
instruments 71,769 636,040 - 707,809
Other income 3,491 121 2 3,614
Total revenues 281,637 682,788 14 964,439
Expenses:
Provision for losses 571,008 11,703 - 582,711
Provision for second-
lien premium
deficiency 18,090 - - 18,090
Policy acquisition
costs 13,460 10,446 - 23,906
Other operating
expenses 34,170 20,738 233 55,141
Interest expense 7,090 5,154 249 12,493
Total expenses 643,818 48,041 482 692,341
Equity in net income
of affiliates - - 12,526 12,526
Pretax (loss) income (362,181) 634,747 12,058 284,624
Income tax (benefit)
provision (135,725) 219,219 5,492 88,986
Net (loss) income $(226,456) $415,528 $6,566 $195,638
Assets $5,001,689 $3,133,958 $118,378 $8,254,025
Total investments 4,051,596 2,508,351 - 6,559,947
Deferred policy
acquisition costs 62,860 176,540 - 239,400
Reserve for losses
and loss adjustment
expenses 1,741,169 160,959 - 1,902,128
Derivative
liabilities 353,559 349,846 - 703,405
Unearned premiums 365,161 709,428 - 1,074,589
Stockholders' equity 1,328,594 1,412,429 126,333 2,867,356
Radian Group Inc. and Subsidiaries
Segment Information
Quarter Ended March 31, 2007
Exhibit D
Mortgage Financial Financial
(In thousands) Insurance Guaranty Services Total
Revenues:
Net premiums written -
insurance $206,411 $42,019 $- $248,430
Net premiums earned -
insurance $180,243 $34,264 $- $214,507
Net investment income 35,559 25,437 - 60,996
Net gains (losses) on
securities 11,123 2,824 (202) 13,745
Change in fair value of
derivative instruments 4,338 44,079 - 48,417
Other income 2,849 140 829 3,818
Total revenues 234,112 106,744 627 341,483
Expenses:
Provision for losses 112,854 (5,812) - 107,042
Policy acquisition costs 16,523 11,731 - 28,254
Other operating expenses 36,272 14,235 3,860 54,367
Merger expenses 3,328 - - 3,328
Interest expense 6,854 4,596 1,606 13,056
Total expenses 175,831 24,750 5,466 206,047
Equity in net income of
affiliates - - 22,772 22,772
Pretax income 58,281 81,994 17,933 158,208
Income tax provision 13,579 24,078 7,084 44,741
Net income $44,702 $57,916 $10,849 $113,467
Assets $4,774,210 $2,757,800 $592,898 $8,124,908
Total investments 3,567,581 2,378,387 - 5,945,968
Deferred policy
acquisition costs 67,835 157,762 - 225,597
Reserve for losses and
loss adjustment expenses 676,691 175,771 - 852,462
Unearned premiums 277,135 697,633 - 974,768
Stockholders' equity 2,322,374 1,457,712 394,690 4,174,776
Radian Group Inc.
Financial Guaranty Supplemental Information
For the Quarter Ended and as of March 31, 2008
Exhibit E
Quarter Ended
($ in thousands, except ratios) March 31
2008 2007
Net Premiums Written: (1)
Public finance direct $5,603 $12,780
Public finance reinsurance 17,541 18,154
Structured direct 4,182 5,247
Structured reinsurance 5,442 5,912
Trade credit reinsurance 287 (74)
Total Net Premiums Written -
insurance $33,055 $42,019
Net Premiums Earned: (1)
Public finance direct $17,810 $11,585
Public finance reinsurance 9,870 11,100
Structured direct 3,882 4,691
Structured reinsurance 5,599 6,194
Trade credit reinsurance 495 694
Total Net Premiums Earned -
insurance $37,656 $34,264
Refundings included in earned premium $11,657 $6,586
Claims paid:
Trade credit reinsurance $586 $2,646
Other