Radian Group Inc. — Q1 2022 Form 10-Q
Reporting period: Three months ended March 31, 2022; balance-sheet comparisons are to December 31, 2021. Figures are unaudited. Radian operates Mortgage and homegenius businesses.
Financial performance
| Metric | Q1 2022 | Q1 2021 |
|---|---|---|
| Total revenue | $293.0 million | $328.8 million |
| Net premiums earned | $254.2 million | $271.9 million |
| Services revenue | $29.3 million | $22.9 million |
| Net investment income | $38.2 million | $38.3 million |
| Investment and other financial instrument losses | $(29.5) million | $(5.2) million |
| Provision for losses | $(83.8) million | $46.1 million |
| Pretax income | $234.1 million | $161.2 million |
| Net income / diluted EPS | $181.1 million / $1.01 | $125.6 million / $0.64 |
| Operating cash flow | $116.7 million | $153.0 million |
Management’s non-GAAP adjusted pretax operating income was $264.9 million, compared with $167.3 million; adjusted diluted operating EPS was $1.17 versus $0.68. The reported loss provision reflects favorable prior-year reserve development, not a cash inflow. GAAP return on equity was 17.2%, compared with 11.8%; adjusted net operating return on equity was 19.9%, compared with 12.4%.
Mortgage segment adjusted pretax operating income rose to $277.8 million from $175.7 million. homegenius revenue increased to $33.9 million from $25.8 million, but its adjusted pretax operating loss widened to $13.5 million from $10.5 million.
Balance sheet, debt and liquidity
- Total assets were $7.62 billion and stockholders’ equity was $4.15 billion at March 31, 2022, down from $7.84 billion and $4.26 billion, respectively, at year-end.
- Senior notes totaled $1.41 billion; FHLB advances were $149.0 million. The $275 million revolving credit facility was undrawn, and the company reported compliance with its covenants.
- Debt-to-capital was 25.4%, versus 24.9% at year-end. Book value per share was $23.75, down from $24.28.
- Radian Group reported $1.0 billion of available holding-company cash and liquid investments and $1.3 billion of total liquidity including the undrawn facility.
- Cash and restricted cash decreased by $19.1 million during the quarter. Investing cash use was $71.8 million and financing cash use was $64.0 million.
- Available-for-sale investment fair value fell to $5.40 billion from $5.52 billion. Net unrealized investment losses recorded in other comprehensive income were $249.7 million after tax, contributing materially to lower equity. Management said it intended and was able to hold loss-position securities until recovery of amortized cost.
Material changes and operating trends
- Net income increased 44% year over year, principally as the loss provision shifted from expense to a benefit. Favorable reserve development on prior-period defaults was $124.9 million, compared with $4.5 million in Q1 2021.
- New mortgage insurance written declined 7.5% to $18.7 billion. Purchase loans represented 91.4% of NIW, compared with 59.1%; refinance activity weakened. Primary insurance in force increased to $249.0 billion from $246.0 billion at year-end, and the 12-month persistency rate rose to 68.0% from 57.2% a year earlier.
- New primary defaults declined 21% to 9,393. The primary default rate was 2.6%, down from 2.9% at year-end; cures exceeded new defaults during the quarter. The reserve for losses and LAE decreased to $727.2 million from $828.6 million.
- Services revenue growth was led by real-estate valuation and single-family rental services. homegenius expenses also rose, reflecting business investment, staffing and incentive compensation.
- Higher interest rates and market conditions drove investment losses and a sharp decline in unrealized gains. The filing says higher rates may support higher investment income in future periods.
Outlook, capital and risks
- Management cited positive long-term housing fundamentals but noted inflation, rising mortgage rates, reduced refinance demand and uncertainty related to the Russia-Ukraine conflict and the broader economy. Results remain sensitive to housing prices, unemployment, interest rates and mortgage origination volumes.
- The filing cites market projections—not company guidance—of approximately $2.8 trillion in 2022 mortgage originations, about 36% below 2021, and a $500–$525 billion private mortgage insurance market. Management expected higher persistency as refinancing declines.
- Radian Guaranty remained PMIERs-compliant. Its PMIERs cushion was $1.6 billion, or 44%, at quarter-end, down from $2.1 billion, or 62%, at year-end. The decrease primarily reflected a $500 million return of capital to Radian Group and higher required assets.
- Radian Guaranty’s risk-to-capital ratio was 12.1:1, compared with 11.1:1 at year-end; it complied with applicable state requirements. Its statutory surplus was $422.6 million after the approved $500 million capital return. Ordinary distributions generally require regulatory approval; management said positive unassigned surplus could potentially be achieved within two years if favorable trends continue.
- The board authorized a new $400 million share-repurchase program in February; $378.7 million remained available at March 31. The quarterly dividend was increased from $0.14 to $0.20 per share. Management estimated approximately $140 million in dividends and equivalents over the next 12 months, subject to board decisions.
- Legal and regulatory matters arise in the ordinary course. Management did not expect currently known matters to materially affect consolidated financial condition, while noting that outcomes are inherently uncertain. The filing reported no material changes to previously disclosed risk factors and effective disclosure controls.
Important facts for investors to verify
- Whether favorable cures, home-price trends and reserve development persist, and how actual claims compare with reserve assumptions.
- Whether the PMIERs cushion and statutory capital remain adequate as the $500 million return of capital affects available assets and future requirements.
- How interest rates, credit spreads and market volatility affect investment values, realized results and future investment income.
- Whether lower refinance activity, purchase-market volume and persistency support continued growth in insured in-force business and premiums.
- Whether homegenius can convert revenue growth and strategic spending into improved profitability.
- The pace of share repurchases and dividends relative to holding-company liquidity, debt maturities and capital needs.