Radian Group Inc.

Schedule II—Financial Information of Registrant

Balance Sheets

Parent Company Only



	December 31,
(In thousands, except share and per share amounts)	2012			2011
Assets
Investments
Trading securities—at fair value	$	99,171		$	387,239
Short-term investments—at fair value	136,075			177,116
Other invested assets	16,666			25,000
Cash	2,978			453
Restricted cash	360			1,060
Investment in subsidiaries, at equity in net assets	1,234,229			1,591,914
Debt issuance costs	8,582			8,414
Due from affiliates, net	17,690			2,451
Property and equipment, at cost (less accumulated depreciation of $48,786 and $46,998)	1,344			2,017
Other assets	33,524			35,474
Total assets	$	1,550,619		$	2,231,138
Liabilities and Stockholders’ Equity
Accounts payable and accrued expenses	$	54,869		$	123,665
Accrued interest payable	3,959			7,558
Long-term debt	663,571			818,584
Federal income taxes—current and deferred	91,895			99,040
Total liabilities	814,294			1,048,847
Common stockholders’ equity
Common stock: par value $.001 per share; 325,000,000 shares authorized; 151,131,173 and 150,666,446 shares issued at December 31, 2012 and 2011, respectively; 133,647,216 and 133,199,159 shares outstanding at December 31, 2012 and 2011, respectively	151			151
Treasury stock, at cost: 17,483,957 and 17,467,287 shares at December 31, 2012 and 2011, respectively	(892,094		)	(892,052		)
Additional paid-in capital	1,967,414			1,966,565
Retained (deficit) earnings	(355,241		)	96,227
Accumulated other comprehensive income	16,095			11,400
Total common stockholders’ equity	736,325			1,182,291
Total liabilities and stockholders’ equity	$	1,550,619		$	2,231,138

See Supplemental Notes.

Radian Group Inc.

Schedule II—Financial Information of Registrant

Statements of Operations

Parent Company Only



	Year Ended December 31,
(In thousands)	2012			2011			2010
Revenues:
Net investment income	$	9,093		$	15,890		$	8,626
Net gains on investments	8,816			24,603			61,120
Net gains on other financial instruments	9,180			1,085			2,496
Other income	3			3			220
Total revenues	27,092			41,581			72,462
Expenses:
Other operating expenses	2,690			—			—
Interest expense	17,756			16,132			1,911
Total expenses	20,446			16,132			1,911
Income before income taxes	6,646			25,449			70,551
Benefit for income taxes	(40,187		)	(201,741		)	(209,235		)
Equity in net (loss) income of affiliates	(498,301		)	74,960			(2,085,653		)
Net (loss) income	$	(451,468	)	$	302,150		$	(1,805,867	)

See Supplemental Notes.

Radian Group Inc.

Schedule II—Financial Information of Registrant

Statements of Cash Flows

Parent Company Only



	Year Ended December 31,
(In thousands)	2012			2011			2010
Cash flows from operating activities:
Net (loss) income	$	(451,468	)	$	302,150		$	(1,805,867	)
Adjustments to reconcile net (loss) income to net cash (used in) provided by operating activities:
Net gains on other investments	(1,821		)	(24,603		)	(61,120		)
Gain on the repurchase of long-term debt	(16,175		)	—			(2,496		)
Equity in undistributed net loss (income) of subsidiaries and affiliates (1)	505,267			(495,954		)	2,049,175
(Decrease) increase in federal income taxes	(7,145		)	49,396			(274,778		)
Change in other assets	895			13,384			35,797
Change in accounts payable and accrued expenses	25,336			90,895			(20,711		)
Net cash provided by (used in) operating activities	54,889			(64,732		)	(80,000		)
Cash flows from investing activities:
Sales/redemptions of fixed-maturity investments available for sale	—			—			4,083
Sales/redemptions of trading securities	153,992			151,840			57,989
Purchases of trading securities	(3		)	(32,825		)	(455,724		)
Sales (purchases) of short-term investments, net	41,042			156,665			(230,392		)
Sales (purchases) of other invested assets, net	8,709			—			(25,000		)
Purchases of property and equipment, net	(1,124		)	(523		)	(1,367		)
Capital contributions to subsidiaries and affiliates (1)	(100,384		)	(50,587		)	(423,146		)
Capital distributions from subsidiaries and affiliates	—			—			268,530
Net cash provided by (used) in investing activities	102,232			224,570			(805,027		)
Cash flows from financing activities:
Dividends paid	(1,335		)	(1,330		)	(1,202		)
Issuance of long-term debt	—			—			391,310
Redemption of long-term debt	(153,261		)	(160,000		)	(29,348		)
Proceeds from issuance of common stock	—			—			525,887
Net cash (used in) provided by financing activities	(154,596		)	(161,330		)	886,647
Increase (decrease) in cash	2,525			(1,492		)	1,620
Cash, beginning of year	453			1,945			325
Cash, end of year	$	2,978		$	453		$	1,945

_______________________


(1)	See Note A.

See Supplemental Notes.

Radian Group Inc.

Schedule II—Financial Information of Registrant

Parent Company Only

Supplemental Notes

Note A

The Radian Group Inc. (the “Parent Company”) financial statements represent the stand-alone financial statements of the Parent Company. These financial statements have been prepared on the same basis and using the same accounting policies as described in the consolidated financial statements included herein, except that the Parent Company uses the equity-method of accounting for its majority owned subsidiaries. Refer to the Parent Company’s consolidated financial statements for additional information.

Revisions to Prior Periods

In preparing the Parent Company stand-alone financial statements for the year ended December 31, 2012, we identified a misclassification in the 2011 statement of cash flows of $95.4 million related to tax payments to subsidiaries under our tax-sharing agreement, which we classified as capital contributions to subsidiaries and affiliates within investing activities. These payments have been reclassified as equity in undistributed earnings of subsidiaries within operating activities.

Certain other prior balances have been reclassified to conform to the current period presentation.

Note B

Included in short-term investments at December 31, 2012 and 2011 is $55.6 million and $27.7 million, respectively, of restricted funds required to support estimated tax payments to Radian Asset Assurance. We also had $0.4 million and $1.1 million at December 31, 2012 and 2011, respectively, of restricted cash held as collateral for our insurance trust agreement for our health insurance policy.

Note C

The Parent Company provides certain services to its subsidiaries. The Parent Company allocates to its subsidiaries corporate income and expense it incurs in the capacity of supporting those subsidiaries, based on either an allocated percentage of time spent or internally allocated capital. Substantially all operating expenses, and all interest expense, except for the discount amortization attributable to the senior convertible notes issued in November 2010, have been allocated to the subsidiaries for 2011 and 2010. Total operating expenses and interest expense allocated to subsidiaries for 2012, 2011 and 2010, were $93.2 million, $100.7 million and $105.2 million, respectively. Amounts charged to the subsidiaries for operating expenses are based on actual cost, without any mark-up, except for the amounts charged to subsidiaries outside the U.S. for which a reasonable mark-up is charged. The Parent Company considers these charges fair and reasonable. The subsidiaries reimburse the Parent Company for these costs in a timely manner, which has the impact of improving the cash flows of the Parent Company.

Note D

During 2012 and 2011, the Parent Company did not receive any dividends from its subsidiaries. During 2010, the Parent Company received a $268.5 million capital distribution from unregulated subsidiaries.

During 2012, the Parent Company made capital contributions of $100.4 million to its subsidiaries. This included a contribution of $100.0 million to Radian Guaranty in February 2012 and a $0.1 million contribution to Radian Mortgage Reinsurance Company in December 2012. This amount also includes the reimbursement to Radian Guaranty of $0.3 million in interest expense payments made to the Parent Company by RMAI pursuant to the interest expense sharing arrangement, as required per the terms of the Fannie Mae Approval. The Parent Company also received tax payments of $36.8 million from its subsidiaries in 2012 under our tax-sharing agreement.

During 2011, the Parent Company contributed $30.0 million to Radian Guaranty and $20.1 million to EFSG. During 2011, the Parent Company also made tax payments to its subsidiaries of $67.0 million under our tax-sharing agreement. In December 2011, the Parent Company contributed its ownership interest in RMAI to Radian Guaranty, which totaled approximately $16.6 million. Also in December 2011, Radian Guaranty sold its ownership interest in EFSG to the Parent Company for approximately $5.7 million.

During 2010, the Parent Company contributed $322.0 million to Radian Guaranty and $101.0 million to CMAC of Texas.

Note E

During 2010, the Parent Company repurchased $31.9 million, of outstanding principal amount of our 7.75% debentures due June 2011. In November 2010, the Parent Company issued $450 million principal amount of 3.00% convertible senior notes due November 2017, at a discount to par. The convertible senior notes are convertible into shares of our common stock.

On February 23, 2012, the Parent Company commenced a “Modified Dutch Auction” tender offer (the “Tender Offer”) to purchase a portion of its outstanding 2013 Notes. The Parent Company acquired $146.5 million in aggregate principal amount of the 2013 Notes as a result of the Tender Offer for a price of $900 per $1,000 principal amount of Notes, which represented 59% of the principal amount of the 2013 Notes outstanding. The transaction resulted in a realized gain of $15.2 million, representing the excess of carrying value over the purchase price. During the second and third quarters of 2012, the Parent Company purchased an additional $24.1 million in aggregate principal amount of the outstanding 2013 Notes resulting in an additional gain of $1.0 million. The Parent Company repaid the remaining outstanding balance of $79.4 million of the 2013 Notes upon maturity on February 15, 2013.

On December 3, 2012, the Parent Company commenced an offer to eligible holders to exchange any and all of its outstanding 5.375% Senior Notes due June 15, 2015 (previously defined as the “Old Notes”) for a new series of 9.000% Senior Notes due June 15, 2017 (previously defined as the “New Notes”) and additional cash consideration in certain circumstances (previously defined as the “Exchange Offer”) for purposes of improving its debt maturity profile. The total exchange consideration received by tendering eligible holders of the Old Notes consisted of: (i) an equal principal amount of New Notes for each $1,000 principal amount of outstanding Old Notes tendered and accepted; and (ii) an early participation payment of $25.00 in cash for each $1,000 principal amount of Old Notes tendered and accepted, paid only to eligible holders who tendered their Old Notes on or before December 14, 2012. In addition, eligible holders whose Old Notes were accepted for exchange, received a cash payment representing accrued and unpaid interest for such Old Notes from December 15, 2012, the most recent payment date for interest on the Old Notes to, but not including, the settlement date, January 4, 2013. The Exchange Offer expired on December 31, 2012. Of the $250 million aggregate principal amount of Old Notes that was outstanding as of December 3, 2012, an aggregate principal amount of $195.2 million was validly tendered. On January 4, 2013, the Parent Company delivered in exchange for the Old Notes tendered in the Exchange Offer, an aggregate principal amount of $195.2 million of New Notes, as well as $0.6 million in accrued and unpaid interest on the exchanged Old Notes. In accordance with the terms of the Exchange Offer, we also paid additional aggregate cash consideration of $4.9 million in respect of $195.2 million aggregate principal amount of Old Notes tendered before December 14, 2012.

At December 31, 2012, the maturities of our long-term debt in future years, as reflected on our balance sheets, are as follows:



(In thousands)
2013	$	79,449
2014	—
2015	249,868
2016	—
2017	334,254
Thereafter	—
	$	663,571

Note F

Net investment income for 2012 declined compared to 2011 as a result of a decrease in our investment balances, as well as a shift from higher yielding securities in our investment portfolio to lower yielding investments. The net investment income for 2011 compared to 2010 reflects a full year of income earned on the reinvested proceeds received from our issuance of common stock in May 2010 and the issuance of our convertible debt in November 2010.

The net gains on investments for 2012 and 2011 reflect gains from the sale of securities in our portfolio. Net gains on investments for 2010 reflected unrealized market gains relating to our unconsolidated CPS, substantially all of which were purchased by the Parent Company during 2010.

The net gains on other financial instruments for 2012 reflect gains on the repurchase of our 2013 Notes offset by unrealized losses on structured settlements.

The interest expense for 2012 and 2011 reflects the amortization of the debt discount relating to the 2017 convertible debt, which is not allocated to our subsidiaries.