Radian Group Inc.

Thank you for holding your conference will begin momentarily in a few minutes. Thank you for your patience. Thank you. Thank you. © transcript Emily Beynon Good morning, and welcome to the Radian Second Quarter 2021 Earnings Call. My name is Zanara, and I'll be the operator for today's call. At this time, all participants are in a listen-only mode. Later, we will conduct a question-and-answer session. During the question-and-answer session, if you have a question, please press star, then 1 on your touch-tone phone. Please note this conference is being recorded. I'll now turn the call over to Mr. John Damian, Senior Vice President of Investor Relations and Corporate Development. John, you may begin.

Thank you, and welcome to Radian's second quarter 2021 conference call. Our press release, which contains Radian's financial results for the quarter, was issued yesterday evening and is posted to the investor section of our website at www.radian.com. This press release includes certain non-GAAP measures that will be discussed during today's call, including adjusted pre-tax operating income, adjusted diluted net operating income per share, and adjusted net operating return on equity. In addition, specifically for our Home Genius segment, other non-GAAP measures that will be discussed today include adjusted gross profit, adjusted pre-tax operating income or loss before allocated corporate operating expenses, and the related home genius profit margins. A complete description of our non-GAAP measures may be found in Press Release Exhibit F, and reconciliations to GAAP may be found in Press Release Exhibit G. These exhibits are also available on the Investors section of our website. This morning, you will hear from Rick Thornberry, Radian's Chief Executive Officer, and Frank Hall, Chief Financial Officer. Also on hand for the Q&A portion of the call is Derek Brummer, President of Radian Mortgage. Due to the current environment, all of our speakers are remote. I would ask that you please excuse any sound quality or technical issues that may arise during the call. Before we begin, I would like to remind you that 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 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 2020 Form 10-K and subsequent reports filed with the SEC. These are also available on our website. Now, I would like to turn the call over to Rick.

Thank you, John, and good morning. Thank you all for joining us today and for your interest and radiance. As a company that offers products and services across the mortgage and real estate spectrum, we are encouraged by the continued positive momentum in the housing market, as well as the favorable credit trends within our insurer portfolio that increasingly reflect a return to a more certain operating environment. We continue to closely monitor the pandemic and the economic environment and navigate our business accordingly. Frank will discuss the details of our financial position shortly, but let me share a few highlights and insights from the second quarter. We reported net income of $155 million, or 80 cents per share for the quarter, and adjusted diluted net operating income per share was 75 cents. We grew our book value per share by 11% year-over-year. We achieved this growth even after counting for the $100 million in dividends that we returned to stockholders over the past year. For our mortgage segment, we remain focused on maximizing the economic value and the future earnings of our mortgage insurance portfolio. During the quarter, we wrote $21.7 billion of high-quality, high-value new mortgage insurance business, and our primary insurance in force was $237.3 billion at June 30th. It's important to note that despite a modest decline in our total mortgage insurance portfolio year over year, the composition of the portfolio has gone through a favorable transition with our monthly premium insurance in force growing by 8%, which is the primary driver of our earned premiums. We have seen continued improvement in the credit performance of our portfolio with a 42% year over year decline in our total number of defaulted loans. Strong cure activity continues with cures outpacing new defaults each month since June 2020. In addition, more than 70% of our defaulted loans are in forbearance and approximately 80% of defaults from our peak default months in May and June last year have since cured. The primary driver of the decrease in our loss provision this quarter was a better than expected cure activity we are observing in prior period defaults and a declining number of new defaults. In fact, new notices of default in the second quarter were at or below pre-COVID new default levels. At June 30th, rating guarantees PMIR's excess available assets grew to $1.9 billion, or a cushion of 58%. Now I'd like to provide some perspective on mortgage insurance pricing and our focus on building economic value. As I mentioned in May, we have seen increased pricing competition over the last few quarters as the economic environment has shown some improvement following the pandemic-related downturn a year ago. During the second quarter, we are seeing signs that the mortgage insurance industry is transitioning to a more normal, less competitive environment. It is important to highlight that at Radian, We have remained disciplined in how we are navigating this environment and continue to focus on generating long-term economic value and maximizing that value for our company and shareholders. We continue to write new business and attractive returns that we believe will add economic value to our portfolio. While we expect some quarter-to-quarter market share volatility across the mortgage insurance industry, we believe our recent business volume is trending back towards a pro-rata share of the overall market. In terms of the overall housing market, we saw positive momentum continuing in the second quarter. Overall, the home purchase market remains strong, illustrated by the composition of our new mortgage insurance business, which represented 77% purchase volume in the second quarter versus only 56% a year ago. Based on the latest data from our own radiant home price index, over the second quarter of 2021, continued strong housing demand and relatively limited supply in the market led to an annualized 12% increase in home prices across the country. We continue to expect the rate of home price appreciation to moderate this year, and we believe the combination of an improving economy, strong housing dynamics in terms of demand, supply, home values, and mortgage underwriting, relatively low mortgage interest rates, and income growth are well aligned for a healthy and sustainable housing market. Recent market projections for 2021 now estimate total mortgage origination to be approximately $3.9 trillion. While the overall origination market is expected to be less than 2020 due to lower refinance volume, the purchase market continues to grow, which is positive for the mortgage insurance industry given the higher likelihood that purchase loans will utilize private mortgage insurances compared to refinance loans. Based on these most recent industry origination projections, we continue to expect the private mortgage insurance market to be approximately $550 to $600 billion, which would be slightly lower than the record volume in 2020, but would still represent the second highest MI volume year in history. Overall, we believe the improving macroeconomic conditions and strong home purchase market fueled by first-time homebuyers provide strong tailwinds for long-term growth in the economic value and projected future earnings of our mortgage insurance portfolio. Turning to our home genius segment, formerly known as real estate, total revenues for the second quarter were $33.5 million, representing a 30% increase for the first quarter of 2021 and a 48% increase year over year. This was primarily driven by an increase in our title revenue, which grew 74% year over year, as well as growth in our valuation business, As we discussed during the real estate segment of yesterday in June, our products and services are a natural extension of our core mortgage insurance business and support our mission of ensuring affordable, sustainable home ownership. We believe Home Genius has the potential for significant value creation and financial contribution going forward, and Frank will discuss our progress against the financial projections that we introduced two months ago. In terms of capital strength, at June 30th, Rating Group maintained a strong capital position with $1.2 billion of total holding company liquidity. In terms of share buyback activity, we repurchased 3.9 million shares of Rating Group common stock during the second quarter for $90 million and an additional 2.8 million shares for $61.4 million in July. Approximately $39 million remains under our current authorization that expires at the end of this month. And as we mentioned last quarter, in May, we increased our quarterly dividend to 14 cents, a 12% increase over our prior quarterly dividend. Turning to the regulatory and legislative landscape, we were happy to see the appointment of Sandra Thompson as Acting Director of FHFA. Acting Director Thompson has been a long-serving member of the FHFA team across multiple administrations, and we believe she'll bring a balanced view to promoting access affordability while continuing to ensure the safety and soundness of the GSEs. Importantly, she has served at the FHFA during the evolution and reform of the mortgage insurance business model, including the implementation of PMIRES, and therefore is intimately familiar with the strength of our business model and our resilient performance during the most recent COVID pandemic period. We look forward to working with Acting Director Thompson and her team. As to the regulatory environment, we appear to have entered a new phase focused on balancing the wind down of regulatory relief programs and various restrictions. The GSEs recently lifted their 50 basis point adverse market fee on refinance loans and have also instituted changes in their temporary PMIRES guidelines to allow dividends for mortgage insurers that meet certain available asset thresholds which are phased out throughout the remainder of the year. The CFPB has also instituted new rules to help ensure that the significant number of borrowers scheduled to come off a COVID relief program this quarter are given every opportunity to remain in their homes. At the same time, the unprecedented level of federal support and coordination to ease the economic burden of the pandemic continues with ongoing foreclosure-related eviction moratoria and legislative proposals that are intended. to benefit homeownership, in particular for first-time homebuyers. We expect this careful balance between a phased return to normality and further federal support to continue for the foreseeable future, which is good for the economy and for homeownership, and given our strong alignment with borrower interests, for the mortgage insurance industry as well. Now I'd like to turn the call over to Frank for details of our financial positions.