Radian Group CEO Discusses Q3 2010 Results - Earnings Call Transcript
Radian Group Inc. (
)
Q3 2010 Earnings Call
November 3, 2010 10:00 am ET
Executives
Emily Riley, Investor Relations
S.A. Ibrahim - CEO
Bob Quint - EVP & CFO
Teresa Bryce - President of Radian Guaranty
Dave Beidler - President of Radian Asset Assurance
Scott Theobald - EVP & CRO of Radian Guaranty
Analysts
Steve Stelmach - FBR Capital Markets
Mike Grondahl - Northland Capital Markets
Mike Grasher - Piper Jaffray
Donna Halverstadt - Goldman Sachs
Douglas Harter - Credit Suisse
Conor Ryan - Deutsche Bank
Matthew Howlett - Macquarie
Nat Otis - KBW
Chris Owens - EpicQuest
Conor Ryan - Deutsche Bank
Presentation
Operator
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Ladies and gentlemen, thank you for standing by and welcome to Radian’s Third Quarter 2010 Earnings Call. At this time, all participants are in a listen-only mode and later we will conduct a question-and-answer session with instructions being given at that time. (Operator Instructions) And as a reminder today’s conference is being recorded.
I would now like to turn the conference over to your host, Ms. Emily Riley. Please go ahead.
Emily Riley
Thank you and welcome to Radian’s third quarter 2010 conference call. Our press release, which contains Radian’s financial results for the quarter was issued earlier today and is now posted to the investor section of our website at www.radian.biz.
During today’s call, you will hear from S.A. Ibrahim, Radian’s Chief Executive Officer and Bob Quint, Chief Financial Officer. Also on hand for the Q&A portion of the call are Teresa Bryce, President of Radian Guaranty, Dave Beidler, President of Radian Asset Assurance and Scott Theobald, Executive Vice President and Chief Risk Officer of Radian Guaranty.
Before we begin, I would like to remind you the comments made during this call will include forward-looking statements. These statements are based on current expectations, estimates, projections and assumptions that are subject to risks and uncertainties, which may cause actual results to differ materially.
For a discussion of these risks, please review the cautionary statements regarding forward-looking statements included in our earnings release and the risk factors included in our first and second quarter 2010 Forms 10-Q. These are also available on our website.
Now, I would like to turn the call over to S.A.
S.A. Ibrahim
Thank you, Emily, and thank you all for your interest in Radian. Today I will provide highlights of our quarterly performance and also discuss several industry trends. Bob will then cover the details of our financial position and we will then open the call to your questions.
Before we discuss our results, I would like to highlight two important points for today’s call. First, as we have said for the past several quarters, we continue to operate in a challenging and uncertain environment. Second, we were pleased with several positive developments in the quarter. The news headlines each day remind us of the difficult housing market and economy.
Just last week, the CoreLogic Home Price Index showed a decline in home prices for the first time this year while the FHFA cited an increase. During the same week, the Consumer Confidence Index jumped to its highest level in six months and sales of existing homes rose all while stories of foreclosure suspensions multiplied. In the business sector, there have been positive signals throughout this earnings season as several leading companies reported healthy third quarter results.
Clearly, we’re operating in a challenging environment. At Radian, however, there were several improvements in the quarter worth noting. For mortgage insurance, we saw a promising increase in new insurance written as well as a decline in our delinquency account for the third consecutive quarter.
For financial guaranty, despite a challenging environment for the industry, we continued to see signs of credit trend stabilization including in our TruPs CDO portfolio.
Turning to the quarter’s results, earlier today we reported third quarter net income of $112.2 million or $0.84 per diluted share compared to a net loss of $70.5 million or $0.86 per diluted share for the same period last year.
Our results once again reflect the accounting impact of fair value adjustments in the quarter, which included a pre-tax gain of $230 million or $1.12 per share on an after-tax basis as well as gains on other financial instruments.
The gain on derivatives resulted mainly from the tightening of credit spreads within our CDO portfolio in the quarter. We continued to benefit from our strategic efforts to reduce risks that is non-core to our MI business and to utilize our financial guaranty business for important capital support.
There are two notable examples in the quarter. First, we terminated two structured mortgage insurance transactions that consisted primarily of modified pool exposure. This eliminated 4,325 loans from our delinquent inventory and reduced primary risk in force by $188 million.
These deals consisted almost entirely of off day option-ARM loans from 2006 and 2007 vintages with default rates significantly higher than the Radian average and the $143 million termination payment was slightly less than our loss reserve. Importantly, the terminations helped to partially reduce the uncertainty associated with our aged default inventory.
Second, the New York Insurance Department again approved the release of contingency reserves for Radian Asset based on the reduction in our net par outstanding. This $42 million was added to statutory surplus in the quarter and strengthened Radian Guaranty’s capital position.
As I mentioned earlier, despite a challenging environment for the industry, our financial guaranty business generated $187 million in income, which included gains of derivatives and other financial instruments. More importantly, absent these fair value adjustments, our financial guaranty business was profitable in the quarter. And the company is expected to pay an ordinary dividend of approximately $65 million to Radian Guaranty in June of next year.
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