Share-Based and Other Compensation Programs

On May 10, 2017, our stockholders approved the Amended and Restated Equity Compensation Plan, which amended and restated the 2014 Equity Plan by increasing the number of shares that may be issued under the plan and making certain other changes. In addition to the Amended and Restated Equity Compensation Plan, we also have awards outstanding under our 2008 Equity Plan and 1995 Equity Plan. The last awards granted pursuant to the 2008 and 1995 Equity Plans were granted in 2014 and 2008, respectively. All awards granted under the Equity Plans have been performance-based or time-vested awards in the form of non-qualified stock options, restricted stock, RSUs, phantom stock, or SARs. The maximum contractual term for all awards under the Equity Plans is 10 years, although awards have been granted with shorter terms.

The Amended and Restated Equity Compensation Plan authorizes the issuance of up to 8,954,109 shares, plus such number of shares of common stock subject to awards outstanding under the Amended and Restated Equity Compensation Plan and the 2008 Equity Plan that subsequently terminate, expire or are cancelled and become available for issuance under the Amended and Restated Equity Compensation Plan (“Prior Plan Shares”). There were 8,851,531 shares available for grant under the Amended and Restated Equity Compensation Plan as of December 31, 2017 (the “share reserve”), which includes Prior Plan Shares. Each grant of restricted stock, RSUs, or performance share awards under the Amended and Restated Equity Compensation Plan (other than those settled in cash) reduces the share reserve available for grant under the Amended and Restated Equity Compensation Plan by 1.31 shares for every share subject to such grant. Absent this share reserve adjustment for outstanding restricted stock, RSUs, phantom stock or performance share awards, our shares remaining available for grant under the Amended and Restated Equity Compensation Plan would have been 11,691,367 shares as of December 31, 2017. Awards under the Amended and Restated Equity Compensation Plan that provide for settlement solely in cash (and not common shares) do not count against the share reserve.

Most awards vest at the end of the performance or service period. In the event of a grantee’s death or disability, awards generally vest immediately. Upon retirement, awards generally vest immediately or at the end of the performance period, if any. Awards granted under the Equity Plans to officers provide for “double trigger” vesting in the event of a change of control, meaning that awards will vest in connection with a change of control only in the event the grantee’s employment is terminated by us without cause or the grantee terminates employment for “good reason,” in each case within 90 days before or one year after the change of control. In the event of a hypothetical change of control as of December 31, 2017, we estimate that the vesting of awards, assuming for purposes of this hypothetical that “double trigger” vesting occurred, would have resulted in a pretax accounting charge to us of approximately $10.2 million, representing the acceleration of compensation expense.

We use the Monte Carlo valuation model to determine the fair value of all cash-settled awards where stock price is a factor in determining the vesting, as well as for cash- or equity-settled performance awards where there exists a similar stock price-based market condition. The Monte Carlo valuation model incorporates multiple input variables, including expected life, volatility, risk-free rate of return and dividend yield for each award to estimate the probability that a vesting condition will be achieved. In determining these assumptions for the Monte Carlo valuations, we consider historic and observable market data.

Depending on certain characteristics of the awards granted under the various Equity Plans noted above, they are accounted for as either liabilities or equity instruments. The following table summarizes awards outstanding and compensation expense recognized for each type of share-based award as of and for the years ended:



	December 31,
($ in thousands)	2017				2016					2015
Share-Based Compensation Programs	Liability Recorded/ Equity Instruments Outstanding		Compensation Cost Recognized (1)		Liability Recorded/ Equity Instruments Outstanding		Compensation Cost Recognized (1)			Liability Recorded/ Equity Instruments Outstanding		Compensation Cost Recognized (1)
Liabilities:
RSUs—Cash-Settled	$	—	$	1	$	18	$	(718	)	$	3,595	$	10,244
SARs—Cash-Settled	—		—		—		—			—		159
Liabilities	$	—	$	1	$	18	$	(718	)	$	3,595	$	10,403
Equity:
RSUs—Equity Settled	3,434,976		12,206		3,208,454		13,285			2,472,861		9,243
Non-Qualified Stock Options	1,692,743		851		2,839,738		3,286			2,692,457		2,984
Phantom Stock	234,302		2		234,174		2			230,196		2
Employee Stock Purchase Plan			432				449					396
Equity			13,491				17,022					12,625
Total all share-based plans			$	13,492			$	16,304				$	23,028

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(1)	For purposes of calculating compensation cost recognized, we generally consider awards effectively vested (and we recognize the full compensation costs) when grantees become retirement eligible.

The following table reflects additional information regarding all share-based awards for the years indicated:



	Year Ended December 31,
(In thousands)	2017		2016		2015
Total compensation cost recognized	$	13,492	$	16,304	$	23,028
Less: Costs deferred as acquisition costs	269		206		500
Stock-based compensation expense	$	13,223	$	16,098	$	22,528

RSUs (Cash-Settled)

Performance-Based RSUs— In 2012, a total of 2,211,640 performance-based RSUs (to be settled in cash) were granted to eligible officers under the 2008 Equity Plan. These performance-based RSUs entitled grantees to a cash amount equal to the fair market value of RSUs that vested at the end of a three-year performance period in 2015. Vesting of awards granted to both non-executives and executives in 2012 was dependent upon the performance of Radian Group’s total stockholder return (“TSR”) relative to the TSR of a performance peer group. Based on performance during the three-year performance period, grantees were entitled to a maximum payout of 200% of their target number of RSUs.

There were no cash-settled performance-based RSUs granted after 2012.

Time-Vested RSUs— At December 31, 2015, a total of 262,694 time-vested RSUs (to be settled in cash), originally granted to our non-employee directors during 2009 and 2010, remained outstanding. On February 10, 2016, these time-vested RSUs (to be settled in cash) were converted into time-vested RSUs to be settled in common stock. Upon the director’s termination of service with us, the non-employee director generally will be entitled to the equivalent number of shares of common stock.

RSUs (Equity Settled)

Information with regard to RSUs to be settled in stock for the periods indicated is as follows:



	Number of Shares		Weighted-Average Grant Date Fair Value
Unvested, December 31, 2016	3,208,454		$	12.08
Granted	1,020,832		$	16.84
Vested	(99,424	)	$	14.39
Forfeited	(694,886	)	$	14.66
Unvested, December 31, 2017	3,434,976		$	12.90

Performance-Based RSUs—In 2017, 2016 and 2015, executive and non-executive officers were granted a total of 456,510; 701,110; and 499,740; respectively, of performance-based RSUs to be settled in common stock. The maximum payout at the end of the three-year performance period is 200% of a grantee’s target number of RSUs. The maximum payout for awards based on the TSR Measures described below is generally subject to a maximum cap of six times the value of the grantee’s award on the grant date.

The vesting of approximately 50% of the target performance-based RSUs granted to each executive officer in 2017 and 2016 is dependent upon (i) Radian Group’s TSR compared to the median TSR of a designated peer group of companies as of the date of grant (the “Relative TSR Measure”) and (ii) Radian Group’s absolute TSR (“Absolute TSR Measure,” and together with the Relative TSR Measure, the “TSR Measures”), in each case measured over a three-year performance period and subject to certain conditions. The remaining 50% of each executive officer’s target award will vest based on the cumulative growth in Radian’s book value per share, adjusted for certain defined items, over a three-year performance period. The vesting of performance-based RSUs granted to non-executives in 2017 is the same as described above for executive officers. The vesting of performance-based RSUs granted to non-executives in 2016 is entirely based on the TSR Measures described above and does not include a book value measure.

The vesting of performance-based RSU awards granted to executive officers and non-executives in 2015 is entirely dependent upon Radian Group’s TSR Measures, as described above.

The grant date fair value of the performance-based RSUs that are based on the cumulative growth in Radian’s book value per share is calculated based on the stock price as of the grant date, discounted for the lack of dividends earned over the vesting period and the one-year post-vesting holding period, as applicable. The compensation cost that is recognized over the remaining requisite service period is based on our expectations of the probable level of achievement of the performance condition.

The grant date fair value of the performance-based RSUs that are based on TSR Measures is determined using a Monte Carlo valuation model. The following are assumptions used in our calculation of the grant date fair value of performance-based RSUs to be settled in common stock:



	2017		2016		2015
Expected life	3 years		3 years		3 years
Risk-free interest rate (1)	1.6	%	0.9	%	1.0	%
Volatility of Radian’s stock (2)	28.0	%	29.7	%	40.6	%
Average volatility of peer companies (3)	30.6	%	38.2	%	24.0	%
Dividend yield	0.06	%	0.08	%	0.05	%
Discount rate (4)	10.7	%	10.7	%	13.9	%

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(1)	The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.

(2)

Volatility of Radian’s stock is used in the calculation of the grant date fair value of the portion of the awards based on TSR Measures, as described above. Volatility of Radian’s stock is not an applicable assumption for valuing the portion of the awards based on the cumulative growth in Radian’s book value per share. Volatility is determined at the date of grant using the historical share price volatility and the expected life of each award.


(3)	Average volatility of peer companies is used in the calculation of the grant date fair value of the portion of the awards based on the Relative TSR Measure, as described above.


(4)	A discount is applied to executive officer awards to reflect illiquidity during the one-year post-vesting holding period.

Also in 2017, 123,496 performance-based RSUs to be settled in common stock were granted to the Company’s former chief executive officer (“CEO”) pursuant to the terms of his retirement agreement. Vesting for these performance-based RSUs only occurs if a stock price hurdle is met during the performance period, which begins 10 days prior to the first anniversary of the grant date and ends on the fifth anniversary of the grant date, or upon the death of the grantee or a change in control of the Company. The stock price hurdle requires that the closing price of our common stock on the New York Stock Exchange equals or exceeds 120% of the grant date share price, or $22.46, for 10 consecutive trading days during the performance period.

Time-Vested RSUs— Information with regard to grants of time-vested RSUs to be settled in common stock is as follows for the periods indicated:



	Year Ended December 31,
	2017 (1)	2016 (2)		2015 (2)
Time-vested RSUs granted to certain executives and non-executive officers	372,489	180,380		56,970
Time-vested RSUs granted to non-employee directors	68,337	356,040	(3)	56,171
Total time-vested RSUs granted (4)	440,826	536,420		113,141

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(1)	The time-vested RSU awards granted in 2017 are scheduled to vest in: (i) pro rata installments on each of the first three anniversaries of the grant date or (ii) generally at the end of three years.


(2)	The time-vested RSU awards granted in 2016 and 2015 generally are subject to three-year cliff vesting.


(3)	Includes 262,694 time-vested awards granted on February 10, 2016 to convert the outstanding fully-vested 2009 and 2010 time-vested RSUs (to be settled in cash) awarded to our non-employee directors into time-vested RSUs to be settled in shares of our common stock on the conversion date (generally defined as a director’s termination of service with us).


(4)	The grant date fair value of time-vested RSUs was calculated based on the closing price of our common stock on the New York Stock Exchange on the date of grant, discounted for the lack of dividends earned over the vesting period, and is recognized as compensation expense over the service period.

Non-Qualified Stock Options

Information with regard to stock options for the periods indicated is as follows:



($ in thousands, except per-share amounts)	Number of Shares		Weighted Average Exercise Price Per Share		Weighted Average Remaining Contractual Term	Aggregate Intrinsic Value
Outstanding, December 31, 2016	2,839,738		$	7.64
Granted	—		$	—
Exercised	(1,092,559	)	$	6.53
Forfeited	(54,436	)	$	13.79
Expired	—		$	—
Outstanding, December 31, 2017	1,692,743		$	8.16	5.6	$	21,075
Exercisable, December 31, 2017	1,162,943		$	5.24	4.6	$	17,878
Available for grant, December 31, 2017	8,851,531

The following table summarizes additional information concerning stock option activity for the periods indicated:



	Years Ended December 31,
($ in thousands, except per-share amounts)	2017		2016		2015
Granted (number of shares)	—		342,090		212,230
Weighted-average grant date fair value per share (1)	$	—	$	9.72	$	14.68
Aggregate intrinsic value of options exercised	$	14,389	$	1,519	$	7,146
Tax benefit of options exercised	$	5,036	$	532	$	2,501
Cash received from options exercised	$	7,131	$	717	$	1,285

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(1)	We use the Monte Carlo valuation model in determining the grant date fair value of stock options issued to executives and non-executives using the assumptions noted in the following table:



	Year Ended December 31,
	2016		2015
Derived service period (years)	3.02 - 4.00		3.02 - 4.00
Risk-free interest rate (a)	1.72	%	2.32	%
Volatility (b)	94.20	%	93.70	%
Dividend yield	0.08	%	0.05	%

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(a)	The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant.


(b)	Volatility is determined at the date of grant using historical share price volatility and expected life of each award.

Upon the exercise of stock options, we generally issue shares from the authorized, unissued share reserves when the exercise price is less than the treasury stock repurchase price and from treasury stock when the exercise price is greater than the treasury stock repurchase price.

The following table summarizes information concerning outstanding and exercisable options at December 31, 2017:



	Options Outstanding				Options Exercisable
Range of Exercise Prices	Number Outstanding	Weighted Average Remaining Contractual Life (Years)	Weighted Average Exercise Price		Number Exercisable	Weighted Average Exercise Price
$2.45 - $3.58	903,224	4.3	$	2.64	903,224	$	2.64
$5.76 - $7.06	17,676	0.2	$	7.06	17,676	$	7.06
$10.42 - $15.44	601,648	7.1	$	13.57	224,603	$	14.50
$18.42	170,195	7.5	$	18.42	17,440	$	18.42
	1,692,743	5.6	$	8.16	1,162,943	$	5.24

Generally, the stock option awards have a four-year vesting period, with 50% of the award vesting on or after the third anniversary of the grant date and the remaining 50% of the award vesting on or after the fourth anniversary of the grant date, provided the applicable stock price performance hurdle is met, as described below. The fair value of stock options vested during the year ended December 31, 2017 was $3.3 million.

There were no stock options granted in 2017. For stock option awards granted in 2016 and 2015, in addition to the time-based vesting requirements, the options contain a performance hurdle whereby the options will only vest if the closing price of our common stock on the New York Stock Exchange exceeds approximately $15.20 and $23.03 (in each case, 125% of the option exercise price), respectively, for 10 consecutive trading days ending on or after the third anniversary of the date of grant.

We elected to apply the short-cut method, under the accounting standard regarding share-based payment, to account for the windfall tax benefits that may result from the exercise of stock options. Effective January 1, 2017, upon the implementation of the update to the accounting standard regarding stock-based compensation, windfalls and shortfalls resulting from cancellations, expirations or exercises of stock options are reflected in the consolidated statements of operations as part of our income tax provision, as they occur. See Note 2.

Employee Stock Purchase Plan

We have an Employee Stock Purchase Plan, the 2008 ESPP, under which 2,000,000 shares of our authorized but unissued common stock initially were reserved for issuance. Under the 2008 ESPP, we issued 105,476; 151,121; and 94,676 shares to employees during the years ended December 31, 2017, 2016 and 2015, respectively. In January 2018, we issued 52,464 shares from the shares available for issuance under our 2008 ESPP. As a result, 850,004 shares currently remain available for issuance under the 2008 ESPP.

The 2008 ESPP is designed to allow eligible employees to purchase shares of our common stock at a discount of 15% off the lower of the fair market value of our common stock at the beginning or end of a six month offering period (each period being the first and second six months in a calendar year).

The following assumptions were used in our calculation of Employee Stock Purchase Plan compensation expense during 2017:



	January 1, 2017		July 1, 2017
Expected life	6 months		6 months
Risk-free interest rate	1.04	%	1.35	%
Volatility	34.68	%	29.37	%
Dividend yield	0.06	%	0.06	%

Unrecognized Compensation Expense

As of December 31, 2017, 2016 and 2015, unrecognized compensation expense related to the unvested portion of all of our share-based awards was $16.3 million, $11.3 million and $11.7 million, respectively. Absent a change of control under the Equity Plans, this expense is expected to be recognized over a weighted-average period of approximately 2.1 years.