Good morning, and welcome to Radian's Fourth Quarter 2021 Earnings Call. My name is Brandon, and I'll be your operator for today. [Operator Instructions] Please note, this conference is being recorded. I will now turn it over to John Damian. And John, you may begin.

Thank you, and welcome to Radian's fourth quarter and year-end 2021 conference call. Our press release, which contains Radian's financial results for the quarter and year-end, was issued yesterday evening and is posted to the Investors 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 pretax operating income, adjusted diluted net operating income per share and adjusted net operating return on equity. In addition, specifically for our Homegenius segment, other non-GAAP measures that will be discussed today include adjusted gross profit, adjusted pretax operating income or loss before allocated corporate operating expenses and the related Homegenius profit margins. A complete description of all of our non-GAAP measures may be found in press release Exhibit F and reconciliations of these measures to the most comparable GAAP measures may be found in press release Exhibit G. These exhibits are 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. As all of our speakers are remote today, 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 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 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 in Radian. In 2021, we remain focused across our three areas of strategic value creation. First, growing the economic value and future earnings of our Mortgage Insurance portfolio. In 2021, we wrote the second highest level of mortgage insurance business in our nearly 45-year history. Second, growing our Homegenius business. In 2021, we greatly increased Homegenius revenues, consistent with our Investor Day guidance. And third, managing our capital resources. In 2021, we returned significant capital to our stockholders through a combination of an increased dividend and share repurchases. These results and our continued strong momentum demonstrate the strength and resiliency of our business model. I believe we are well positioned to capitalize on the opportunities ahead through our Mortgage and Homegenius businesses, combined with the strength of our capital resources. As we've all developed a renewed appreciation for the meaning of home over the past two years, our mortgage and real estate products and services have become even more valuable to our customers and the homeowners. And our mission to ensure affordable, sustainable and equitable homeownership has become even more critical. We are proud to serve such an important role in the housing industry. I'd like to take a moment to recognize our talented team who continue to support our customers, launch new products and create new technologies to make doing business faster and easier, and to thank our customers, business partners, investors and Board for their support in helping us deliver such excellent results in 2021. Frank will discuss the details of our financial position shortly, but let me first share a few highlights for the quarter and the year. In our Mortgage segment, we wrote $92 billion of NIW in 2021,…

Thank you, Rick, and good morning, everyone. To recap our financial results issued last evening, we reported GAAP net income of $193.4 million or $1.07 per diluted share for the fourth quarter of 2021 as compared to $0.67 per diluted share in the third quarter of 2021 and $0.76 per diluted share in the fourth quarter of 2020. Adjusted diluted net operating income was $1.07 per share in the fourth quarter of 2021 compared to $0.67 in the third quarter of 2021 and $0.69 in the fourth quarter of 2020. I'll now turn to the key drivers of our revenue. Our new insurance written was $23.7 billion during the quarter compared to $26.6 billion in the third quarter of 2021 and $29.8 billion in the fourth quarter of 2020. New insurance written for purchase transactions was $21.6 billion, an increase of 12% year-over-year. Purchase volume accounted for 91% of our total new insurance written for the fourth quarter of 2021 compared to 65% in the fourth quarter of 2020. Our reported quarterly annualized persistency rate increased to 71.7% this quarter compared to 60.4% a year ago. Market expectations of rising interest rates in 2022 are expected to result in continued declines in refinance activity, which we would expect to drive further increases in our portfolio persistency and support insurance in force growth. Today, more than 65% of our insurance in force consists of business written in 2020 and 2021 and is of high quality and at relatively low mortgage rates. Primary insurance in force increased $4.4 billion during the quarter to $246 billion. Our outlook for 2022 insurance in force growth given the expected higher persistency and strong NIW volume is approximately 10%. Total net premiums earned were $261.4 million in the fourth quarter of 2021 compared to $249.1 million…

Thank you, Frank. Before we open the call to your questions, let me remind you that our team delivered excellent results in 2021, focused on growing our Mortgage and Homegenius businesses and managing capital. We wrote high levels of new Mortgage Insurance business while growing Homegenius revenues significantly. The credit performance of our portfolio continued to improve. During 2021, we continued our long-standing track record of prudently managing capital, returning over $500 million to stockholders through dividends and share repurchases. We increased our quarterly dividend this month, which provides the highest dividend yield in the private MI industry. And we announced a new $400 million share repurchase authorization. We are pleased with our business momentum heading into 2022. And we will continue to leverage the strength of our team and utilize data analytics and technology to differentiate ourselves from the competition and help our customers succeed in a fast-moving digital market. Now operator, we would like to take questions.

[Operator Instructions] And from Barclays, we have Mark DeVries. Please go ahead.

Yes first question is just to clarify one, on Frank's comments around the premium yield. Frank, is the roughly two bps of additional compression you kind of guided to for this year, is that off of the 40.1 bps you would have had without that $5 million of adjustments or is that off of the 41 or so you actually posted this quarter?

Yes, so the adjustments are also the reported 41.

Okay got it.

1.0, taking - I'm sorry there's a lot of 40s and 1s there, taking it from 41 down to 40.1.

Yes, no, my question is, but then I think you guided correct to maybe another two basis points of additional pressure. Is it off that 40.1?

Correct.

Okay got it, got it. And then my second question is trying to get at kind of the impact on the addressable market for MI of all the home price appreciation we've seen. If I heard Rick's comments properly, I think you indicated that HPA was roughly 14.2% for your book. And I think the FHFA used 19% to kind of reset the conforming loan limits? Does that kind of imply that MI tends to get deeper penetration in markets that have seen less home price appreciation, and therefore, kind of moving that bar up nationally actually increases the addressable market for you?

Yes, thank you, Mark. I think our reference was to our Radian home price index, which was a year-over-year increase. And the FHFA, I think, was an annualized number, if I remember correctly. So we're really referencing not our MI portfolio, but our view based upon literally millions of observations across the country of transactions around our view of the national home price appreciation year-over-year, right. So that's, I think, maybe a little bit of apples and oranges. But as that - does not reflect on the MI portfolio specifically. But I would say, I think the MI portfolio has participated in that home price appreciation, as we discussed previously, about the percent of equity in the homes. But I do - I would also just add that the home price appreciation is really a lot has happened at the lower ends of the market, right, given first-time homebuyer supply/demand dynamics. So I would say, overall, it's been a very strong market for the MI kind of borrower. Derek, if you want to add anything to that.

No.

From Bank of America, we have Mihir Bhatia. Please go ahead.

Thank you for taking my questions. The first one I had, maybe just I wanted to turn to Exhibit H. And I had a quick question just on the - when we look at the FICO of the LTV percentages, clearly, there's been a little bit of - I mean, deterioration is probably way, way too strong word to use here. But certainly, the high FICOs have come down a little bit and the higher LTVs have increased a little bit there? And what I wanted to understand is, is that a function of the market or is that also a you mentioned your pricing and engine [ph] looks at so many different variables. It's just calls by you where you're seeing maybe a little bit better risk reward, a little bit better intrinsic value, if you will. Is that what's happening there? I imagine you do a little bit deeper analysis than what's presented here. So just trying to understand what's going on there?

Mihir, it's Derek. So it's really a combination of the two. Much of it's just driven by a shift to a purchase market. And so you had to kind of expect that, Rick talked about that strength. So if you go back a year ago, I think our refi volume was about 35% Q4. Now it's down to - the most recent quarter, under 10% so a lot of its driven there. And then some of it is just risk selection. So when we're trying to find economic value. We're looking at a combination of, one, where we see those loans performing over a long-term given kind of where the economic environment is and our projections going forward, but also importantly, where we see the market clearing rate. So to the extent we see relative value in certain segments, we might be a bit overweight, underweight in certain areas. And we're constantly shifting that. And I'd say the other thing we're very mindful of is not becoming over allocated. So even if we have pretty strong conviction that there is more economic value in a segment to the extent that we think we're taking two outsized a share. We'll also moderate there for more of a qualitative perspective. So it's really both in short.

Okay no that's helpful, thank you. And then just my other question, just on Homegenius - and I'll just ask both to them like pretty related and then jump back in queue. Just - the first was - there used to be a SaaS line item, I think is to go forward to just combine that with the SFR and call it real estate. Is that the go-forward plan? And then the other question on Homegenius I just had was, you mentioned revenue at the low end of the prior guidance. How are you feeling about margins in that segment is the 14% margin still achievable? Thank you.

Yes, thank you, Mihir. And I think just kind of taking both your questions together. Just as we sit here today with Homegenius overall, I think we see a few timing differences in our forecast. But we believe we're well positioned in tracking against the strategic plan we laid out for Investor Day last year. As we mentioned at our Investor Day, we could see a few timing differences related to the market changes. And also just the timing of rollout of some of these technology products and I think - so in the fourth quarter, we saw a little bit of a slowdown in the refinance business, which kind of affects our title business today, at least on the - refinance side. And as we kind of come into this year, that declines a little faster than we thought. But the good news is we're actually expanding our existing relationships based on service and our value proposition. And we've got a really strong pipeline of customers that we're signing and onboarding. So I think from that perspective, we feel good. To go to your SaaS question, on our SaaS business, we actually - as we mentioned at our Investor Day, we actually - the first guidance that we gave related to SaaS was really 2022 in terms of number of SaaS users. And so as we prepare to launch those products really commercially into the market with the first one up is a Genius price, which is a very kind of first-of-its-kind property intelligence platform. We'll start to provide more highlights on that as we go and break that out as appropriate. But I think today, as we sit here with our title business, with a strong group of customers, as we sit prepared to starting to launch these SaaS products and really strong momentum in our other real estate services, which are really primarily driven by our SFR relationships and our valuation products. We feel like today, we're in a very strong position in the market and continuing to see tremendous opportunities. I would just say that, as we said, the low end of the range, a range of $225 million to $275 million in revenues. At $225 million, that's year-over-year growth of 50%. And I think, again, would be a very strong step forward for the business. But I think probably, if anything, it's a little bit of timing, with strong participation from title, and growing opportunity in SaaS as we launch these products and continued strong markets around SFR and valuation. So as we sit here today, I think we're very excited about the business. We feel good about the momentum. A few timing differences aren't going to matter to us in the long run.

No absolutely. Sorry, I just - I did want to ask the one question on that, was just the margin. I think you said 14-ish percent margin. Do you feel good about that or are you guiding on that still?

Yes. I think we still - we have not changed our view on that from our initial guidance. And I think, again, a lot of it - there can be some timing differences on that because of mix differences. But in terms of our overall product profitability that we see in the various products across Homegenius, we still feel very good about that.

From Credit Suisse, we have Doug Harter. Please go ahead.

Thanks, Frank thanks for the detail on the contingency reserve. Can you just talk about your ability over 2022, 2023 to continue to get capital out of the subsidiaries until those contingency reserves release? And how we should be thinking about - that until you can give regular way dividends?

Sure, yes I appreciate the question, Doug. When you think about the amount of holding company resources that we have currently, post the $500 million return of capital, we're sitting with holding company cash on a pro forma basis off of 4Q of about $1.1 billion. And if you think about the sort of the stated intended uses of that capital on a go-forward basis, and let's call it just over the next two years, we have a $400 million share repurchase authorization that's new. And if you look at the new dividend level at $0.20 a share on a go-forward basis, and you look at that over the course of the next two years, so it's $144 million annually, $288 million over the course of that two years. So we have roughly $688 million that would be expected to be used for both share repurchase and dividends. So you compare that to our current resources. And that's why I made the statement that I did that we believe that we have a nice bridge that will help us achieve our capital management, capital return plans until we hit that 2024 time line. So we think we're very well balanced. We think we're well calibrated. And we certainly think that we are very well positioned from both a holding company standpoint and also making sure that we support the organic desires and plans with the operating companies as well. So when you look at it in the context of PMIERs cushion as the operating company, still a very, very strong cushion there. So we think we're well calibrated overall.

From KBW, we have Bose George. Please go ahead.

Actually, just a follow-up on that -- the question about capital return or dividends up from the insurance company. In 2024, did you mention like what the cadence is of the ability to return capital. What -- I think you mentioned the $500 million number at some point, but if could you just go over that again.

Sure. So the way that it works, Bose, is it's calibrated to when the unassigned funds turn positive. And if you look at Slide 20 and then in my prepared remarks there, that unassigned funds balance, because of the movements of contingency reserves, both what's coming in and what's coming out, coupled with earnings, that creates a position where unassigned funds turn positive. And an approximate amount that we would be able to return in capital from ordinary dividends would be roughly $500 million.

Okay. Great. Perfect. And then actually switching to expenses. Can you just talk about where you think expenses at the mortgage -- the insurance company goes next year?

Absolutely. So we've provided a little more detail on Exhibit E, Pages 6 and 7 probably are going to be the most helpful to you. And I'll speak to both the total expense level on a quarterly basis and the Mortgage segment as well. So when you look at the total, and this is on Page 7 of Exhibit E, we're more to guide to roughly $85 million on a total quarterly basis for total expenses. And then when you look at the segment itself of mortgage, which is on Page 6 of Exhibit E, we're going to guide to roughly $55 million to $60 million or relatively flat on a go-forward basis there for the Mortgage segment.

Okay. And the $55 million to $60 million, that doesn't include the policy acquisition cost. So that should be sort of the run rate of $7 million a quarter-ish?

That -- I believe that's correct, yes.

Okay. Great. And then just one more. There was a, I guess, press report about potential M&A involving Radian. Just curious if you can say anything, and to the extent you can, just any thoughts on just M&A in the industry in general, how you guys think if that's a possibility would be great.

Bose, this is Rick. And yes, I appreciate the question, but it's our long-standing policy not to comment on market rumors. I think our business strategy and objectives remain unchanged. And as you just heard, we reported excellent financial results this past year. And in our -- and our plan is to continue returning capital to stockholders. We're excited about the momentum of our business and -- from last year and into this year. So I think as you think about consolidation, we believe the market has a healthy number of players today. The GSEs have expressed the same and have an interest in not expanding their counter-party concentration risk. And I think, especially given their counter-party risk to private MI is their largest counter-party risk. So from our perspective, it's hard to make the numbers work on a combination or consolidation within the industry. And I think you have to have enough cost synergy to really offset the market share decline. So whenever asked to comment on consolidation, I always look at from - within the industry, I think to be one of the remaining players would be a positive if consolidation were to occur given the redistribution of market share. So - but it's very hard - the math is very hard to work given the cost synergies versus the market share give up and potential loss and growth. So I think that's what I would say about that. But we're excited about where we sit today and the position of our business and we are - that's what we're focused on.

From BTIG, we have Ryan Gilbert. Please go ahead.

Hi thanks good morning. First question is just around persistency. It sounded like on - the view was maybe a little more positive around persistency in 2021. I think last quarter we talked about persistency remaining below historical levels. So just any more details on your thoughts around how persistency trends in 2022 would be helpful?

Sure, Ryan. This is Frank. Yes, our thoughts on persistency, is we're certainly entering an environment now with increased rates where we would expect persistency to continue to increase. I think we've said historically that a normalized persistency level is somewhere in the low 80s. So I think there's a question of how long it might take to get back to that. But I think the economic backdrop that currently certainly supports a trend line in that direction.

Okay great. And then in your title business, 70-plus percent revenue growth, seems like a pretty sizable market share gain. Is that - are you still operating primarily in refinance? And maybe you can talk about the factors that - or just any details on the factors that drove your growth in 2021? And maybe as we look to expanding your purchase footprint in 2022, just more details on the go-to-market strategy?

Yes thank you, Ryan. On the title side, from our title business point of view, we -- our growth was driven entirely by the development of new customers across our platform and the expansion of existing relationships. So today, we have over 120 active title relationships. We signed 34 new customers in 2021 versus 2020 - versus 2022 in 2020. We have seven of the top 20 lenders as title customers. And our momentum going - coming out of 2021, we signed 13 clients in the fourth quarter and we signed an additional four in the first month of 2022 so a lot of momentum on client growth. And I would tell you too, we have four prospects right now, active prospects in the top 25. So our growth is coming from - obviously, there's volatility in refinances, but our growth today is coming from centralized lender relationships today, primarily focused on refinance. And it's through growth in clients and penetration of existing relationships, which we're winning. Our team is winning those - that penetration of an additional share from our customers based on service. Our service is outstanding. And our team is delivering outstanding service. And we have a great digital platform. And we have a great value proposition for lenders to do business with us. So I think we compete very well with the traditional historical players and the other new entrants. So that's really what's contributed to the growth last year and how we're positioned for this year. On the purchase side, the -- as I mentioned in my prepared comments, we rolled out late last year our [titlegenius] platform, which is really our digital platform based on - built on top of a blockchain and blockchain platform. And that platform, we are focused on working with…

From Dowling, we have Geoffrey Dunn. Please go ahead.

Frank, I wanted to follow-up on the surplus capital management discussion and try to better understand what this $500 million dividend move is. Is this front-end loading what you consider your capacity over the next two years? Meaning that 278 pro forma is kind of the minimum surplus you want to be at, and we grow from here until 2024? Or is there more capacity if you put on an additional $100 million of surplus in the next year, can you consider pulling that out? I'm trying to understand where you think of your minimum here with this action?

Sure great question, Geoff. The way that I would describe it - because we don't like to speak forward about any capital actions I would suffice it to say that what we've done. We believe, provides us with a good, as I said in my prepared remarks, a good bridge between where we sit today and where we expect to be in 2024. Again, as I outlined, the amount of holding company resources that we have to support our intended capital return actions that have been approved and announced, we think, are sufficient. So I would just leave it at that.

And from B. Riley Securities, we have Cullen Johnson. Please go ahead.

Good morning and thanks for taking my question. We touched a little bit earlier on 80% as maybe a longer-term average for persistency. But I'm wondering if rates continue to go meaningfully higher could we see persistency upwards of that? Or should we maybe think of the 80s as more of an upper bound that we would just start to approach over time in a much higher rate environment?

Yes, this is Frank great question. I think when we think about low 80s, if you think about just the natural turn in the portfolio that occurs with roughly a five, six-year duration type asset, that would imply an 80%-ish persistency or a 20% turn each year. So that I think, when you look at just very low refinance activity occurring, that calibrates to roughly low 80s on a persistency level. Is there a chance it could go higher? I'd hate to discount the possibility. I just don't - I don't see it as being likely.

Okay great, that's helpful. And then are you still kind of generally seeing favorable outcomes for the borrowers that are still exiting forbearance with respect to loss mitigation or just the ability to resume paying or has there been any sort of change there - relative to prior quarters?

Yes, this is Derek. The trend is pretty consistent. So the excess we see are favorable for the borrower. Over time, we've seen more shift to payment deferral or some sort of modification option. But the trend lines continue to be consistent and positive.

Thank you. And we'll now turn it back to Rick Thornberry for closing comments.

Thank you. And thank you all for your questions and your interest in Radian. We look forward to talking more about our business in the coming quarter and look forward to hopefully seeing many of you in-person as we all come back out of this pandemic environment. Again, thank you and be safe out there. And we look forward to talking soon. Take care.

Thank you. Ladies and gentlemen, this concludes today's conference. Thank you for joining. You may now disconnect.