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Radian Group (RDN) Q2 2019 Earnings Call Transcript

Motley Fool Transcribing, The Motley Fool
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Radian Group (NYSE: RDN)
Q2 2019 Earnings Call
Aug 01, 2019, 10:00 a.m. ET

Contents:

  • Prepared Remarks
  • Questions and Answers
  • Call Participants

Prepared Remarks:


Operator

Ladies and gentlemen, thank you for standing by, and welcome to the Radian second-quarter 2019 earnings conference call. [Operator instructions] I would now like to turn the conference over to our host, senior vice president of investor relations, Ms. Emily Riley. Please go ahead.

Emily Riley -- Senior Vice President of Investor Relations

Thank you, and welcome to Radian's second-quarter 2019 conference call. Our press release, which contains Radian's financial results for the quarter was issued last evening and is posted to the Investors section of our website at www.radian.biz. This press release includes certain non-GAAP measures, which will be discussed during today's call, including adjusted pre-tax operating income, adjusted diluted net operating income per share, adjusted net operating return on equity and services-adjusted EBITDA. A complete description of these measures and the reconciliations to GAAP may be found in press release Exhibits F and G and on the Investors section of our website.

In addition, we have also presented non-GAAP measures for tangible book value and services-adjusted EBITDA margin. 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, senior executive vice president of mortgage insurance and risk services. Before we begin, I would like to remind you that comments made during this call will include forward-looking statements.

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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 2018 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.

Rick Thornberry -- Chief Executive Officer

Thank you, Emily, and good morning. Thank you all for joining us today and for your interest in Radian. I am pleased to report another quarter of excellent financial results for our company. Net income for the second quarter was $167 million, and diluted net income per share was $0.78.

Adjusted pre-tax operating income grew to $216 million, and adjusted diluted net operating income per share increased to $0.80. Book value per share grew 23% year over year to $18.42, and return on equity was 17.8% with an adjusted net operating return on equity of 18.2%. These results reflect the fundamental strength of our business model, the value of our customer relationships and the dedication of our team. With regard to our mortgage insurance business, we grew our primary insurance in force more than 9% year over year to $231 billion.

Our mortgage insurance portfolio, which is one of the largest in our industry, is the primary driver of future earnings for our company. It is important to note that the projected economic value of this portfolio is not reflected in the current period financial statements nor is it reflected in our reported book value, but it is expected to be recognized over time. As we discussed at our investor day in May, we believe the projected future earnings from this portfolio represents significant unrecognized economic value for shareholders. The economic value of this portfolio provides us with significant strategic financial flexibility.

We wrote a record $18.5 billion of NIW in the second quarter, which is a 13% increase over our previous record volume written in the second quarter of 2018. This new business volume was driven by the continued demand for our private mortgage insurance products based on the strength of our current business environment, the depth of our customer relationships and our excellent customer service and our customized pricing options. We are operating a healthy environment for our business, fueled by low interest rates that drove our increase in high-quality purchase loans, as well as an increase in refinance activity. Purchase loans are three to five times more likely to have mortgage insurance versus a refinance loan.

And purchases accounted for 90% of our NIW in the second quarter. While the overall mortgage market increased and refinance volumes did contribute to a decline in quarterly persistency, the impact of lower persistency was more than offset by our record level of new business. In fact, we successfully grew our portfolio by $20 billion or more than 9% year over year. The overall housing market and economic environment also continues to be positive.

Although housing supply remains tight, overall home price appreciation has slowed and is better aligned with income growth, thus improving affordability and creating a healthier, more sustainable housing market. These trends are expected to lead the continued growth in purchase originations, particularly for first-time homebuyers who represent one-third of home sales. In terms of our customer relationships, we are pleased that our focus on providing customized pricing options and excellent customer service helped us to write record levels of new mortgage insurance business in the second quarter that we project will generate attractive risk-adjusted returns. As you know, we introduced radar rates to the market earlier this year, as another MI pricing option available to rating customers.

While a majority of our business today is delivered through radar rates, we continue to offer various options for doing business with Radian that our based on customer needs and preferences and aligned with our appetite for appropriate risk and return. And importantly, while price competition is always present in our industry, the overall increased granularity of our pricing options allows us to shift pricing both up and down to more dynamically shape the risk profile of our MI portfolio and maximize the economic value of the business we write. We believe our unique risk analytics framework focused on loan attributes and originator and servicer insights positions us to right quality business with the right customers and to drive strong risk-adjusted returns. Based on our performance thus far in 2019 and our strong new business pipeline, we now expect to write new mortgage insurance business in 2019 that is in excess of last year's record-breaking level of $56.5 billion.

As you've heard me say many times, this is a great time to be in the mortgage insurance business. The business fundamentals are very strong with guardrails in place for mortgage lending and servicing under Dodd-Frank and our mortgage insurance industry is governed by a clear and consistent and transparent, risk-based capital requirements under PMIERs and operating guidelines with a uniform master policy. The credit quality of our existing book of business is excellent as is the credit environment we operate in today. The number of defaulted loans in our portfolio remains at a 20-year low with cure activity at a 10-year high.

Now moving to our services segment. We continue to make progress across our mortgage, real estate and title services business, and we're pleased to report total services segment revenues of $43 million in the second quarter, which represents growth of 19% from the prior quarter and 6% compared to a year ago. We remain confident in the market opportunity for our products and services, the value of our customer relationships and the team we have in place to grow revenues and build value. In terms of our capital management, as we discussed in detail last quarter, we executed our second mortgage insurance-linked notes transaction in April.

Combined with our first ILN transaction last year and our existing quota share reinsurance programs, these transactions have significantly reduced the risk profile of our company. We continue to believe in the value of distributing risk by utilizing both the capital and reinsurance market. Another important element of our capital strategy has been the improvement of our debt maturity profile and the focus on reducing overall interest cost. Frank will discuss our actions this quarter in more detail.

And finally, we are pleased that our strong financial position has afforded us the opportunity to return capital to our stockholders. In July, we completed our $250 million share repurchase program. In total, we repurchased 11.3 million shares or 5.3% of shares that were outstanding at the beginning of the program. We will continue to consider share repurchases opportunistically within the context of our overall capital strategy, which is designed to enhance our already strong capital structure and position and further demonstrate our commitment to effectively managing capital for our stockholders.

Turning to the regulatory and legislative landscape. With respect to housing finance reform, both treasury and HUD have been preparing plans to reform the housing finance system in reference to the executive memorandum issued by the White House earlier this year. It has been reported that these plans are nearly finalized and will be issued in the next few months. As to the prospects for reform, we believe legislative reform remains unlikely prior to next year's presidential election.

As to administrative reform, FHFA Director Mark Calabria, has been vocal about his desire to seek changes in the GSEs including, among other items, the increased use of private capital. In fact, Director Calabria repeatedly has cited the mortgage insurance industry as an example of where private capital works. Regardless of the path that future reform may take, given our industry strong and consistent capital standards, our proven ability to manage and distribute risk, our uniform master policies and our high operational standards, we believe that the private mortgage insurance will remain critical -- a critical component of any new housing finance system. Turning to more recent news.

The CFPB issued an advance notice of proposed rule making last week regarding the future of the qualified mortgage definition or QM. More specifically, the notice focuses -- focused on how to address the GSE patch, which provides QM designation per loans eligible for purchase by the GSEs including those with debt-to-income ratios in excess of 43%. While the CFPB notice makes it clear that, that GSE patch will expire in January 2021 as planned or following the short extension of this expiration date, the CFPB also stated it is committed to ensuring a smooth and orderly mortgage market throughout its consideration of these issues and resulting transition away from the GSE patch. We are encouraged that the CFPB has decided to pursue this notice and comment period to solicit perspectives on potential alternatives for the GSE patch.

We have been actively participating in the development of alternatives through our industry trade association USMI and other trade groups, and we are optimistic that there are a number of viable options that could improve the current QM definition and continue to serve the above 43 DTI market for creditworthy borrowers. Most importantly, we see this as a good opportunity to level the playing field across regulatory approaches as it relates to QM. Based on what we know today, we expect to see CFPB to take a comprehensive approach to redefining QM to avoid disruption to the housing market and to continue to ensure that well deserving borrowers have access to mortgage product. Now I would like to turn the call over to Frank for details of our financial position.

Frank Hall -- Chief Financial Officer

Thank you, Rick, and good morning, everyone. To recap our financial results reported yesterday evening, we reported net income of $166.7 million or $0.78 per diluted share for the second quarter of 2019, as compared to $0.78 per diluted share in the first quarter of 2019 and $0.96 per diluted share in the second quarter of 2018. As a reminder, results a year ago included $74 million in tax benefits relating to final settlements with the IRS of a long-standing tax matter. Adjusted diluted net operating income was $0.80 per share in the second quarter of 2019, an increase of 10% from the first quarter of 2019 and an increase of 16% over the same quarter last year.

Before I get into the details of the quarter, I will note some significant changes and accounting estimates made during the quarter that impacted our reported results. First is the earned premium acceleration of $32.9 million that was related to the cumulative effect of updated amortization rates used in calculating our unearned premium reserve, which impacts the revenue recognition of single premium policies. As our mix of single premium policies has skewed more heavily to borrower paid policies than lender paid, the expected lives of the policies have shortened and, therefore, has increased the speed of amortization of the single premium policies. This change also creates a $6.2 million decrease in other operating expenses as we accelerated a related portion of the ceding commissions for policies covered under the single premium quota share reinsurance program.

Second is the change in accounting estimate related to our loss reserves and specifically, the IBNR increase of $19.4 million related to previously disclosed legal proceedings regarding loss mitigation activities, largely on pre-2009 vintages. The combined impact of these significant items was positive to our GAAP and operating earnings per share by $0.07 in the quarter. I will now focus on some of the other drivers of our results from the quarter. I'll start with the key drivers of our revenue.

Our new insurance written was $18.5 billion during the quarter compared to $10.9 billion last quarter and $16.4 billion in the second quarter of 2018. Our second-quarter 2019 volume marks our highest quarterly new insurance written on a flow basis. Total NIW increased 13% compared to the second quarter of 2018 and our monthly premium NIW increased 24% year over year. Direct monthly and other recurring premium policies represented 83% of our NIW this quarter, consistent with the first quarter of 2019 and an increase from 76% for the first quarter a year ago.

In total, borrower paid policies represented 97% of our new business for the second quarter. Borrower paid single premium policies represented 14% of our total NIW this quarter, a significant increase from two years ago when they accounted for less than 2% of total NIW. In contrast, lender paid singles were less than 3% of our NIW this quarter, a dramatic decline from over 21% of total production two years ago. This shift in business mix is expected, intentional and designed to improve the return profile of our single premium business overall, as borrower paid singles have higher expected returns relative to lender paid policies due in part to auto cancellation under the Homeowners Protection Act creating shorter expected lives and lower required capital under PMIERs.

Primary Insurance in force increased to $230.8 billion at the end of the quarter, with year-over-year insurance in force growth of over 9%. It is important to note that monthly premium insurance in force increased 12% year over year and has grown by over $30 billion over the past two years. As I discussed at our investor day in May, the in force portfolio is the primary source of our future earned premiums and is expected to generate significant future earnings, which are yet to be reflected in our financial statements and our reported book value. In a baseline economic scenario, we expect our current portfolio to generate over $2 billion in future earnings.

Our 12-month persistency rate of 83.4% was consistent with the prior quarter and increased from 80.9% in the second quarter of 2018. Our quarterly annualized persistency rate declined to 80.8% this quarter from 85.4% in the first quarter of 2019 and 82.3% in the second quarter of 2018. The decline in quarterly annualized persistency compared to the second quarter of 2018 is primarily driven by increased refinance activity, which can create some volatility in the quarterly persistency metric. However, the decline in interest rates that can drive increased refinance activity can also lead to a strong purchase environment presenting an opportunity to write additional business, potentially offsetting the negative impacts of refinancing.

While our long-term expectations for persistency remain in the low to mid-80% range, near-term quarterly persistency may fall below this level. Reported premium yields on our mortgage insurance in force portfolio for the second-quarter 2019 are elevated due to the $32.9 million cumulative adjustment to unearned premiums mentioned earlier. Setting aside the impact of this adjustment, our direct in force premium yield was 47.9 basis points this quarter compared to 48.6 basis points last quarter and 48.4 basis points in the second quarter of 2018 as seen on Slide 10. Net premium yields on our mortgage insurance in force portfolio decreased from 47 basis points in the prior quarter to 46.4 basis points this quarter.

In force portfolio premium yields for the second-quarter 2019 also includes the impact of our most recent insurance-linked note transaction, which causes a reduction in net premium yields of approximately 0.8 basis points. Net mortgage insurance premiums earned were $299.2 million in the second-quarter 2019 compared to $263.5 million in the first quarter of 2019, and $251.3 million in the second quarter of 2018. This 19% increase from the second quarter of 2018 was primarily attributable to the $32.9 million cumulative adjustments to unearned premiums noted earlier, as well as our insurance in force growth. Setting aside the impact of the adjustments, our net premiums earned grew 6% year over year.

Total services segment revenue increased to $43 million for the second quarter of 2019 compared to $36 million for the first quarter of 2019 and $40.5 million from the second quarter of 2018. The increase in revenue compared to the prior quarter was due in part due to typical seasonality of the mortgage and real estate markets and the year-over-year increase was partially attributable to the inclusion of businesses acquired in the latter half of 2018. Our reported services adjusted EBITDA for the second quarter of 2019 was approximately $1.4 million. Our investment income this quarter of $44 million was flat to the prior quarter and a 17% increase over prior year due to both higher rates and higher balances in our Investment portfolio.

At quarter end, the Investment portfolio duration increased slightly from 3.6 to 3.7 years. Duration is slightly shorter than our target as a result of larger cash balances held while we managed through our recent capital transactions. It is noteworthy that our $5.5 billion investment portfolio has grown approximately 13% or just over $639 million since the second quarter of 2018, a sizable increase given that we have paid off debt and repurchased shares during the period. Moving now to our loss provision and credit quality.

As noted on Slide 14, during the second quarter of 2019, the provision for losses for the second quarter of 2019 includes an adverse reserve development on prior period defaults of $6.5 million. This adverse development was driven by the previously mentioned $19.4 million IBNR adjustment, partially offset by positive development of $12.9 million, driven by a reduction in certain default-to-claim rate assumptions on aged defaults. Our primary default rate has continued to decrease and is now at 1.87%, down from 1.95% last quarter and 2.24% a year ago. Consistent with typical default seasoning patterns, the shift in our portfolio composition toward more recent vintages is expected to result in slightly increased levels of new defaults in our portfolio for 2019 as compared to 2018, as new defaults for recent vintages will outpace the reduction in pre-2009 defaults.

It is noteworthy, however, that our total default count has consistently declined to very low levels and currently stands at a 20-year low of under 20,000 loans with very high cure rate. As economic indicators have continued their positive trends, cumulative loss ratios on our post-2008 business continue to indicate historically low levels. Now turning to expenses. Other operating expenses were $70 million in the second quarter of 2019 compared to $78.8 million in the first quarter of 2019 and $70.2 million in the second quarter of 2018.

The reduction in expenses on a linked-quarter basis is primarily driven by $6.2 million, an acceleration of earned ceding commissions related to policies covered under the single premium QSR program described earlier. Moving now to taxes. Our overall effective tax rate for the second quarter of 2019 was 20.4% and our expectation for our 2019 annualized effective tax rate before discrete items is approximately the statutory rate of 21%. Now moving to capital.

For Radian guaranty, and as previously disclosed, in April of 2019, we closed on our second insurance-linked note transaction of approximately $562 million. This brings the total insurance-linked note issuance by Regal REIT, to just under $1 billion and covers origination years of 2017 and 2018 for our monthly premium business. In total, we have reduced Radian Guaranty's PMIERs capital requirements by $1.5 billion by distributing risks through both the capital markets and third-party reinsurance execution. We expect that this prudent risk distribution strategy and our disciplined capital management will continue to enhance our risk profile and improve our financial flexibility.

Also, as previously discussed, and as a result of further capital enhancement actions and our continued strong financial performance, in April 2019, following the approval of the Pennsylvania Insurance Department, Radian guaranty returned $375 million of capital to its parent, Radian Group. This brings the total capital return to Radian Group within the past 12 months to $825 million. It is important to also note that this return of capital is in addition to the funds received regularly by Radian Group through our long-standing agreements with the operating companies, which provides for the reimbursement of group interest and operating expenses. These reimbursements have provided approximately $145 million over the past 12 months.

Radian Guaranty had PMIERs available assets of $3.2 billion and our minimum required assets were $2.6 billion as of the end of the second-quarter 2019. The excess available assets over the minimum required assets of $660 million represents a 26% PMIERs cushion at a $172 million increase from the prior quarter's $488 million cushion. We have also noted on Slide 20, our PMIERs excess available resources on a consolidated basis of $1.8 billion, which, if fully utilized, represents 69% of our minimum required assets at June 30, 2019. We expect our PMIERs cushion to be sufficient to support our projected organic growth, as well as potential volatility, such as the cyclical economic downturn before giving any consideration for the additional benefit of future premium revenue.

And moving to the capital activities for Radian Group. During the second quarter of 2019, the company repaid upon maturity $159 million of its senior notes due 2019. Radian also issued $450 million of senior notes due 2027. Additionally, pursuant to cash tender offers, the company purchased $207.2 million and $127.3 million of our senior notes due 2020 and 2021, respectively.

These purchases resulted in a pre-tax loss on extinguishment of debt of $16.8 million. Following these purchases at June 30, 2019, there was $27 million and $70.4 million remaining principal amounts outstanding on the senior notes due 2020 and 2021, respectively. On July 25, 2019, we redeemed the remaining $27 million of senior notes due 2020. This series of debt restructuring transactions is intended to reduce our debt-to-capital ratio, lower our overall cost of debt and extend the maturities of our debt.

Our weighted average debt maturity has now extended to over six years and our next significant debt maturity will be in 2024, which is also the expected time frame for potential and recurring contingency reserve releases from Radian Guaranty. Our weighted average coupon for debt has also decreased over 40 basis points to only 4.86%. The company has fully utilized our recent $250 million share repurchase authorization as of July 25. The company has repurchased approximately 11.3 million shares over the course of the authorization at an average share price of $22.21.

The total shares repurchased with this authorization represent 5.3% of the shares outstanding at the beginning of the program. And since 2015, we have repurchased approximately 14% of our diluted shares, further evidence of our commitment to return capital to our shareholders while still building capital for our future growth. Holding company liquidity at the end of the second-quarter 2019 was $879 million compared to $723.4 million at the end of the first quarter of 2019 excluding any consideration for our $268 million credit facility. As we continue optimizing our capital structure and evaluating appropriate uses for capital, we will continue to update you on our progress.

At Radian, we have a strong history of taking thoughtful, prudent and shareholder-friendly actions in managing our sources and uses of capital. I will now turn the call back over to Rick.

Rick Thornberry -- Chief Executive Officer

Thank you, Frank. Before we open the call to your question, let me remind you that net income was $167 million and diluted net income per share was $0.78. Adjusted diluted net operating income per share grew to $0.80. Book value per share increased 23% year over year to $18.42, return on equity was 18%.

Our $231 billion mortgage insurance portfolio grew more than 9% year over year and is the primary driver of future earnings for Radian. Our services segment revenues grew 19% from the prior quarter and 6% from a year ago to $43 million, and we made progress against our capital strategy completing our $250 million share repurchase program and extending our debt maturity profile while reducing overall interest costs. Now operator, I would like to open the call to questions.

Questions & Answers:


Operator

[Operator instructions] And our first question will come from the line of Jack Micenko with SIG. Please go ahead.

Jack Micenko -- Susquehanna International Group -- Analyst

Hi. Good morning. I wanted to ask a little bit about the ILN, obviously. You completed the second in April.

Should we think about that going forward as an annual sort of accrual so that maybe mid-2020 or early 2020, we get the '19 covered? And then one of your peers has gone backward and done some work on the back book. Any thoughts from you on that on as a possible strategy?

Frank Hall -- Chief Financial Officer

Sure, Jack. This is Frank. I appreciate the question. We have said historically that we're a fan of the risk distribution, and we're certainly pleased with the pricing and the market conditions to issue ILNs into.

So we do see risk distribution as a permanent part of our capital management and risk management exercise. So as we're evaluating different opportunities, I think as long as market conditions permit, it is something that you would expect to see on an ongoing basis. As it relates to the back book, I think conditions and the profile of that particular set of vintages is a little bit different than the on the run, so it's something that we want to be thoughtful about and is certainly under consideration. But wouldn't want to set expectations around timing or frequency, but as far as it being a part of our risk and capital management programs, definitely.

Jack Micenko -- Susquehanna International Group -- Analyst

OK. And then on the services. I'm hoping for an update on the guidance there. I think you'd -- from 175 to 200.

I guess, first, is that a segment or a consolidated number? And where are we on that guidance? It seems like we're a little bit off the pace from maybe where we should be, 50% all the way through the year.

Rick Thornberry -- Chief Executive Officer

Yes. So -- thank you. This is Rick, Jack. I appreciate the question.

And our services segment revenues were $43 million in the quarter. As we said, that was a growth over the first quarter, which we expected. Our guidance is to achieve an annualized run rate of 175 to 200 million of revenue at 10 to 15% EBITDA margin. So if you look at this quarter, our annualized revenue run rate was 172 million, right? So very close to the bottom end of our guidance.

Our EBITDA margin was 3.3%, but excluding some things that we did from an investment point of view, closer to 7%. So we expect -- as we look forward, we expect to achieve the lower end of our revenue guidance as we go through the year. So I think we'll -- the 175-plus kind of range we should achieve. And I think we're on track to do that as the year progresses.

And the EBITDA is a little bit more volatile just because of a lot of the small numbers, both plus and minus, right? And it can be driven by mix somewhat. So that's our focus. But we also make investments in those businesses from time to time that create volatility around that one metric. So we -- we're staying with our guidance of -- on a run-rate basis.

I think as I said in investor day, these businesses are driving strong value to our MI customer relationships and the real estate data we get from our real estate businesses is extremely valuable to our mortgage credit risk business. So today, we believe as these business are developing and evolving toward creating a financial contribution to our overall company, they are adding value to us across our MI business. And we see that -- I just want to add, we see that from -- almost on a daily basis, from a confirmation point of view that we're being viewed differently. Radian is being viewed differently by customers as a broader business partner.

I've had meetings with five of the top lenders probably in the last 60 days and each of one of them, kind of in their own words, have mentioned that they begin to see Radian much different, their focus is on not only how do we grow our MI relationships, which I think we've demonstrated this quarter that we have the ability to do through our relationships. But the fact -- really the focus around real estate and title capabilities, many of these we do due diligence around securitization programs. But our information, from a real estate and title point of view, is highly interesting and valuable to them and they see an opportunity to work with us with on a broader basis. So I think the one Radian brand is really kind of resonating with our customers.

And as -- again, just as I mentioned at our investor day, we do -- the guidance that we provided, we continue to stick to. But I think as we look, going forward, at these businesses, specifically real estate and title, where we're focused very heavily on data and analytics and technology, are going to -- we do see value growing ahead of earnings. So the contribution today is strategic to our MI business, so I think strategic form of value creation. So probably a little more than you asked for, but I think in the context of the Services business, just to put it in the right frame, from a strategic point of view, we feel like we're on track for the areas that we see value and in this business.

Jack Micenko -- Susquehanna International Group -- Analyst

OK. So it sounds like we step up sort of consistently through back half of the annualized segment number when we exit '19 is where the focus should be.

Rick Thornberry -- Chief Executive Officer

Yes. I think from a pure financial contribution, we're going to see that occur and I think as I mentioned, the strategic aspect of the business I think is playing out well across our MI customer base as well.

Jack Micenko -- Susquehanna International Group -- Analyst

All right. Thanks for taking the questions, guys.

Operator

Next in queue, we'll go to the line of Geoffrey Dunn, Dowling & Partners. Please go ahead.

Geoffrey Dunn -- Dowling and Partners -- Analyst

Thanks. Good morning. Frank, you outlined a capital strategy last quarter that had to do with finishing your authorization, taking care of your debt, etc. And you managed to take care of all that inside of the three-month period here.

So can you give us an update? You got a lot of cash in the holdco, you've really addressed all of the things you highlighted you wanted to address last quarter. What's the plan for the remaining cash?

Frank Hall -- Chief Financial Officer

Sure. Great question, Geoff. Thank you. I think the best way to describe it and this is consistent with how we've described it in the past is we're going to continue to look at uses of capital and the prioritization that we outlined in our investor day, which is make sure we have sufficient capital for organic growth, make sure we have an adequate risk buffer, make sure that we're considering any strategic opportunities that may exist and then we'll look at returns to shareholders, either through just the theoretical possibilities there or share repurchases and dividends.

Historically, we've utilized the share repurchase method and over the past four years, we've repurchased through our share repurchase programs over $400 million of shares. So as we contemplate future actions and we don't, as you know, we announced those actions as they occur, so we don't preview them. I think certainly, we're in a position where we believe that we do have excess capital and we'll contemplate returns to shareholders in a broader context of the capital planning activities that we do. This year, authorization of $250 million one, which was completed, very pleased about that.

So that exhaust this authorization. The next opportunity for an authorization will be at our upcoming August board meeting. And that will be a topic of discussion within the broader capital planning that we do.

Geoffrey Dunn -- Dowling and Partners -- Analyst

And am I correct that I think you indicated last quarter that the board has actively discussed common dividend as well?

Frank Hall -- Chief Financial Officer

The board discusses the full range of capital options also in the context of that capital usage prioritization that I went through as well. So it is a comprehensive discussion that incorporates all aspects of our business.

Geoffrey Dunn -- Dowling and Partners -- Analyst

All right. And what's the date of the board meeting?

Rick Thornberry -- Chief Executive Officer

August 14, I think.

Frank Hall -- Chief Financial Officer

Yes. August 14.

Rick Thornberry -- Chief Executive Officer

So that Wednesday of that week. By the way, Geoff, this is Rick. I just want to add to Frank's comment. I think between management board, we have a very thoughtful and considered kind of capital planning process, as I think, Frank went through at investor day.

And as you can see from what we've done, as Frank mentioned, our actions over the past 12 months have been indicative I think of a very thoughtful process around how we manage the capital resources of this company and how we've accessed sources of capital and how we've used that capital to improve I think shareholders position. So I think if past performance is any indication of how we kind of manage our capital, I think we've got a pretty good track record. And as you said, Frank and many others in this company, have been very busy over the last few months kind of knocking back on a few things down here.

Geoffrey Dunn -- Dowling and Partners -- Analyst

OK. And then just on a different topic. You indicated before most of the business -- or majority of the business has gone through radar rates, but you do have different pricing channels available for lenders or customers' needs. Does Radian participate in the bid rate sheet business? And if you do, can you talk about how you think about the returns in that segment?

Derek Brummer -- Senior Executive Vice President of Mortgage Insurance and Risk Services

Sure. This is Derek, and I'll take that one, Geoff. So as we talked at investor day, some of the bulk bid process, we traditionally have not been a big player there. And so generally, what we're looking at, anytime we're looking at, any sort of forward commitment or customized pricing solution, is making sure that it fits our risk return appetite and really what we're trying to do is focus the book of business where we find the most economic value at a loan level, a product level and at a lender level and making sure we're doing business with the right customers.

So traditionally, we haven't played, I would say, a significant part in that bulk bid process. And I'd say that, the everything, although that's where you see the kind of a lot of news lately, we really haven't seen any changes, I would say, in a material way in terms of the number of lenders that are doing bulk bids and also just the scale of that, I'd say, overall, in terms of the discounting either.

Geoffrey Dunn -- Dowling and Partners -- Analyst

OK. Thanks.

Operator

And next in queue, we'll go to the line of Mark DeVries with Barclays. Please go ahead.

Mark DeVries -- Barclays -- Analyst

Thank you. I had a couple of follow-ups on potential capital returns. Frank, how should we think about how much of the cash of the holdco is available for returns? And then also, how should we think about the capacity to seek dividends up to the holdco over the next 12 months?

Frank Hall -- Chief Financial Officer

Sure. Great question. I appreciate that. The -- I think the way to think about sizing our holding company cash, previously, we have used metrics of 300 million or sufficient for debt service for a number of years.

I think the reality of it is that we're trying to be opportunistic about the capital that we are freeing up at an operating company basis through risk distribution and then being mindful of where that capital resides from a legal entity standpoint. And so over the last 12 months, you've seen us upstream about $825 million, primarily driven by the excess PMIERs cushion that we have and getting comfortable with making that request at the Pennsylvania regulators. So as I went through it at our investor day, is we look at sort of our binding constraint as we manage our capital and liquidity position. PMIERs cushion is one of those constraints, holding company liquidity and then our stat capital.

And so right now, our statutory capital is really the binding constraint that we're operating under. And so the holdco cash is at a level that I would say certainly exceeds any level of previous guidance that we gave. And so we're comfortable with that level. And then also as I went through with Geoff, the priorities of excess capital, we just want to make sure that we have balanced our cash needs at the holdco relative to all of those priorities that I listed: organic growth, risk buffer, strategic opportunities, etc.

So it's hard -- I won't guide to a specific number, but I would just say that we do feel that we do have an excess position there I think in the landscape of all of that. So -- and then also keep in mind too as we think about the holding company cash position, I always like to remind folks that we do have an expense and interest sharing agreement in place, which, as I've mentioned in the prepared remarks, contributes about $145 million over the last 12 months to our holding company cash position.

Mark DeVries -- Barclays -- Analyst

Then I have a question about the accounting around kind of the unearned premiums, the adjustment that you made, $32.9 million. Is that meant to reflect kind of all your expectations for accelerated amortization on singles based on the rate move in a quarter? So in other words, if rates don't do anything, there's no additional benefit in subsequent quarters even if the realization is happening, getting those prepayments. Is this kind of like a pull-forward of all of that? And so we would expect kind of the average premium to drop back down to the level it was at in the prior quarter?

Frank Hall -- Chief Financial Officer

Absent the adjustment, it should be relatively consistent similar to what we've got in the slide deck. But maybe let me explain it perhaps a different way to help you conceptualize it. As we look at our single premium production overall, which creates that unearned premium reserve, historically, we have had the majority of our single premium business be lender paid versus borrower paid. And lender paid coverage is life of loan coverage, whereas borrower paid is subject to the hope of cancellation, which is about a 10-ish-or-so year time horizon.

So what that means is that the in force period, if you will, on borrower paid policies, is significantly shorter than it is on lender paid policies. And when you look at the accounting literature and the recognition curves that we have for the revenue and/or the amortization rates that we use for the UPR, which is the other side of that equation, the time horizon over which the revenue recognition occurs has shortened by about one to two years. So if you have the same fixed amount of premium upfront previously under a lender paid policy, it's in force longer so the revenue recognition curve would be longer, whereas with the borrower paid policy, it would be that same fixed amount of premium will be recognized over a shorter time horizon. And so what you've seen is that roughly 14% of our NIW this quarter is borrower paid singles, which is significantly higher than it was years ago when it was about 2%.

So it's the mix of the single premium production shifting to a shorter life profile, which is causing the significant change in our update on estimates around the UPR.

Mark DeVries -- Barclays -- Analyst

OK, got it. Thank you.

Operator

Next in queue, we'll go to the line of Bose George with KBW. Please go ahead, sir.

Bose George -- KBW -- Analyst

Hey, good morning. Actually, I wanted to ask a question about the debt to capital, I think this is around 20% now. Can you remind us what you're targeting there and how you're thinking about the need for an investment-grade rating?

Frank Hall -- Chief Financial Officer

Sure, Bose. This is Frank. So it's 20.6% reported at the end of the quarter. It's 24.4% now after we took out the rest of the 2020s and finished off a repurchase program.

And historically, we've said low 20s is typically what we were thinking about from a rating agency perspective. And I think as I've mentioned a few times recently, rating agencies don't give us a hard and fast number to manage to. So this is our expectation of what we think it should be to be viewed favorably by the rating agencies. Obviously, we're at a very low level now, certainly relative to our history, and we think that this should be viewed favorably by the rating agencies, but that really is their determination to make.

Bose George -- KBW -- Analyst

OK. And then I am sorry if I missed this, but what was the default to claim rate in the quarter?

Derek Brummer -- Senior Executive Vice President of Mortgage Insurance and Risk Services

I'm sorry, Bose, are you talking about the -- on the new business, on the new defaults?

Bose George -- KBW -- Analyst

Yes.

Frank Hall -- Chief Financial Officer

8%.

Derek Brummer -- Senior Executive Vice President of Mortgage Insurance and Risk Services

8%.

Bose George -- KBW -- Analyst

And just what's the expectation going forward? Do you think any room to move that further down or is this kind of the run rate?

Frank Hall -- Chief Financial Officer

Sure. I think as we've consistently said or even though, we didn't see a change on the new defaults quarter over quarter, we do think the overall economic landscape is favorable. We adjusted -- excuse me, we make adjustments to it in the context of [Audio gap]

Operator

Mr. George, does that answer your question?

Bose George -- KBW -- Analyst

Yes. That last bit faded out a little bit. Actually, I don't know if that was just my phone, or.

Frank Hall -- Chief Financial Officer

Oh, sure, I'm sorry. So the default-to-claim rate assumption is viewed in the context of the current information that we have each quarter and certainly the landscape, the economic landscape is positive and strong. So I would say if that continues, there could be an opportunity to move that lower. What we did do is move the default-to-claim rate down on our aged defaults.

So it really just depends on the performance of the portfolio and economic landscape at the time we make that assessment.

Bose George -- KBW -- Analyst

OK. And if you just -- one more for me. The -- can you just talk about the sensitivity of your investment income to lower fed funds?

Frank Hall -- Chief Financial Officer

Sure. So the lower fed funds rate obviously is at the short end of the curve. So really depends on what the rest of the curve does. Our duration is 3.6 years and I think -- or excuse me, 3.7.

And that is shorter than our target and it's shorter because of some of the capital actions that we took in the quarter. So we would expect to see that extend a little bit. So it really does depend on, I would say, just the timing of the reinvestment opportunities at a particular point in the curve and, of course, spreads what they are doing. So hard to calibrate to a fed rate cut.

So it really does depend on market conditions.

Bose George -- KBW -- Analyst

OK, great. Thanks.

Operator

Next in queue, we'll go to the line of Sam Choe with Credit Suisse. Please go ahead.

Sam Choe -- Credit Suisse -- Analyst

Hi. I'm filling in for Doug Harter today. So all my questions regarding capital return has been answered. So I just wanted to shift focus to the NIW production.

And I mean it was great this quarter. So I was just wondering if there was anything in the competitive landscape that you saw that you took advantage of? And how much of that is replicable going forward?

Rick Thornberry -- Chief Executive Officer

So I think -- thank you for the question, Sam, and you're doing a great job filling in today. So we appreciate it. So I think -- look, we -- from a competition point of view, we really didn't see many changes from the prior quarter or from a market perspective. But I think our growth quarter over quarter is reflective on the relationships of our sales team in the marketplace and the service we deliver.

And I think also driven by our risk analytics, which we do at a loan level, at an originator level and servicer level and how we drive kind of our return focus around from a pricing point of view that produce economic value for our portfolio. So I really -- and Derek and Frank and I and others have spent a lot of time talking about this. We really feel like we are well positioned with our customers to be in a strong position to help them compete. The environment plays well to our strength.

I think really it's reflective of our -- the second-quarter results are really reflective of very strong competitive position. We like the environment. We're very pleased with how our team has adjusted to, I really think kind of a new competitive world, if you will, where pricing is less transparent and who you do business with matters a great deal. So I think this is where -- as we've been seeing for the last couple of years, we are portfolio managers in a world focused on aggregating to managing U.S.

mortgage credit risk. And I think we have to be nimble and flexible through this environment and leverage our core expertise and identify market segments where it makes sense from a loan attribute or customer point of view to drive the targeted risk returns. And when I kind of look at our strengths in terms of our market presence, our risk analytics, our ability to leverage data and analytics to drive pricing to the right customers and do the right business at the right risk-adjusted returns, I truly believe, it plays to our strength. I think you're seeing that reflected in our results.

So I don't know, Derek, if you--

Derek Brummer -- Senior Executive Vice President of Mortgage Insurance and Risk Services

Yes. I would just add. I don't think we've seen any material changes from a competitive perspective. I think in terms of the exact volumes, it's going to be again very dependent upon the competitive environment and our ability, with which we've had success this quarter.

We continue to target mid-teens returns and so to the extent that we can find loans that kind of fit that profile and we're comfortable from a risk return perspective and it's with lenders we feel comfortable with and that's going to be really kind of driving the volume. I think also, in this new environment, where you have more of these so-called black box pricing engines, I think there is kind of a chance of more volatility and also from a market share and volume perspective and also from a credit mix perspective. So we could see a little bit more volatility around that as well.

Sam Choe -- Credit Suisse -- Analyst

Yes. OK. So -- I mean you guys always base production at the quality of the product, not market share. But I mean this was still pretty good quarter.

So I mean I was just wondering, strategically, how do you maintain that? Because I mean it is a positive momentum going forward.

Rick Thornberry -- Chief Executive Officer

Yes. I think -- and actually, I appreciate you making the point because I don't think you've heard market share mentioned and anything we talk about because we consider our role as really building the economic value in our portfolio as opposed to pursuing volume for volume sake. And I think what we've -- the combination of our relationships in the marketplace along with the risk pricing analytics that we do, I think is working well. And I think, to Derek's point, this world has changed a bit from kind of how people compete and I truly believe this plays to our strength, both our presence in the market base and our ability to assess and evaluate risk and determine how best is the price with that risk.

We do -- I think it's important always to highlight, we do value the insights we have around origination quality that we have with our customers and how they service our risk and I think that's served us well to kind of grow our business this quarter, to drive returns that are mid-teens and I think really put us in a position to exceed last year's NIW record, NIW of 56.5 billion. So we're growing a strong portfolio, remember, it's $231 million, and we think it's got significant earnings for the future.

Sam Choe -- Credit Suisse -- Analyst

Very helpful. Thank you so much.

Operator

Next in queue, we'll go to the line of Chris Gamaitoni with Compass Point. Please go ahead.

Chris Gamaitoni -- Compass Point Research -- Analyst

Good morning, everyone. I wanted to follow up on the $2 billion of future embedded value discussion. Is that a pre-tax or posttax number that you disclosed?

Frank Hall -- Chief Financial Officer

That's aftertax. Actually, in the investor day materials, we kind of went through all of components of that, if you want to take a look at that. But that is after-tax earnings.

Chris Gamaitoni -- Compass Point Research -- Analyst

And remind me, was there any conversation on kind of like the way the average of life of that expected recognition period?

Frank Hall -- Chief Financial Officer

Ask that one again?

Chris Gamaitoni -- Compass Point Research -- Analyst

Just $2 billion, what's the weighted average life of receiving that?

Frank Hall -- Chief Financial Officer

Oh, of the -- I'm sorry, the -- no. It conforms with all of the other modeling that we used throughout the company. So there are different life assumptions across different products.

Rick Thornberry -- Chief Executive Officer

We gave two numbers on investor day. One was the undiscounted future earnings and then also the economic value of the portfolio. So I think coming from two different perspectives.

Chris Gamaitoni -- Compass Point Research -- Analyst

And then I just wanted to follow up one thing on the capital priorities. You mentioned before shareholder returns, strategic alternatives. What would be interesting to you right now from a strategic standpoint?

Rick Thornberry -- Chief Executive Officer

So this is Rick. Chris, thanks for that question. I think, look -- I think we've been incredibly disciplined about what we think fits and what we think doesn't fit. And I think most of the things we've done to date from a strategic point of view have been really very small bolt-on kind of immaterial acquisitions.

So today, we get flooded with opportunities and Frank and I and his team have a very quick kind of review process. And so we won't -- I don't think we will comment on specific areas of interest. But something that we think would fit strategically, be accretive, have -- meet our return hurdles, likely -- something that would -- if it were material, would bring scale with it. But it -- these are -- we're not on the hunt for something that's going to fix a problem we don't have.

So it'd be more opportunistic and have to fit into our strategy and fit into our customer needs. We're in the U.S. mortgage and real estate markets today and that's our focus and I think we have pretty good positions with the properties we have.

Chris Gamaitoni -- Compass Point Research -- Analyst

Perfect. Thank you so much.

Operator

And next in queue, we'll go to the line of Mihir Bhatia. Please go ahead.

Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst

Hi. Thanks for taking my questions. just a couple of quick follow-ups really. First, I just wanted to follow up on the default claim question that I think Bose asked.

I just want to make sure I understand. If the economy keeps struggling along, as it is, would that be enough to drive improvements in that assumption? Or do you need to see a leg up in the economy or housing fundamentals or something to improve the assumptions there?

Frank Hall -- Chief Financial Officer

Yes. So I think that's hard to estimate insofar as we're really evaluating the performance of the portfolio in addition to the economic landscape. So it is sort of a multi-factor analysis. Chiming along the quality of the portfolio that we've produced postcrisis has been absolutely outstanding.

So that certainly bodes well for us. Obviously, help from the economy would be helpful overall as well. But it really is hard to give the attribution analysis to a single variable.

Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst

OK. That's fair enough. I understand. And then on the unearned premium reserve that the relief that you had this quarter on the single premium amortizations.

If the Fed was to cut rates again, would that also lead to -- and it leads to lower mortgage rates and that flows through. Does that mean that, that would -- that there's potential for more or does this kind of capture the forward view of the rate curves and the fed expectations, etc.?

Frank Hall -- Chief Financial Officer

Sure. Great question. It is -- the analysis goes beyond just a single input and certainly an input that would have the volatility of Fed rate changes there. So we try to look beyond interest rate moves and the volatility associated with refinance activity.

It is an input in the analysis that we use, especially as we look at the historical performance. But it's not so sensitive that it would move with each Fed rate cut.

Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst

Got it. And then just finally coming back to capital returns. Just -- can you help us just frame the -- I don't know if quarterly is the right time frame, but just trying to understand -- I understand that you're generating a lot of capital. There are some constraints on the amount of capital you can distribute up given the surplus constraints or the statutory surplus and it's not just PMIERs based.

But maybe help us just frame that, what that kind of constraint is? I understand it ends in '23, but how much like do you expect to build that up to?

Frank Hall -- Chief Financial Officer

Sure. Yes, so what we've said and actually in investor day, we went through I think a fairly detailed example of it. But the statutory capital levels right now are 500-ish-or-so million and we've indicated that, that is going to be our binding constraint for a while until we see some of those contingency reserves free up in the 2023, 2024 time frame. And then the amount that gets freed up is about anywhere from 3 to $400 million a year after that.

So if you think about building statutory capital organically, it is not entirely flat, but a very slow rate of change from now until that time horizon. That doesn't mean that we might not see some other ways to position things as we look at organizing our legal entities and our risk, etc. But I would just say on a static go-forward basis, that would be our expectation.

Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst

Got it. Thank you. Those are all of my questions.

Operator

And next in queue, we'll go to the line of Mackenzie Aron with Zelman & Associates. Please go ahead.

Mackenzie Aron -- Zelman and Associates -- Analyst

Thanks. Good morning. Just a quick one. Wasn't sure if there was a yield guidance that you could provide for the back half of the year?

Frank Hall -- Chief Financial Officer

Yes, Mackenzie. This is Frank. Yield guidance is certainly difficult to do. I think I've missed it pretty badly a couple of years ago.

So I'll shy away from it. I think the reality is it depends upon the business that's coming in and the mix of that business and the mix of the business that's coming out as well. So I think the guidance that I gave several years ago was that you should expect to see it come down modestly over time. Our mix over the last two years has shifted such that it did not come down.

But I think it is -- it's certainly something that we're sensitive to. But keep in mind too that the yield guidance that we gave is on the portfolio. And the NIW that we're writing is -- it takes a while to actually have an impact on the portfolio overall. So there are a lot of dependencies there, but, yes, so I hope that's helpful.

Mackenzie Aron -- Zelman and Associates -- Analyst

It is. And just on the ILN, the most recent transaction. Is that fully reflected in this quarter's yield.

Frank Hall -- Chief Financial Officer

It is. And that's the 0.8 basis points. So the total ILN, both for the 2018 and 2017 vintage, the total of those two is about 1.4 basis points.

Operator

And we'll have a question from the line of Phil Stefano, Deutsche Bank.

Phil Stefano -- Deutsche Bank -- Analyst

On an earnings call earlier this week, one of the reinsurers, who's been active in MI said that they noticed other reinsurers seem to be bumping up against either regulatory or rating agency thresholds for the amount of MI business that they could do. Are your brokers slagging this to you? Or any comments you can provide about maybe the sustainability of the singles quota share?

Derek Brummer -- Senior Executive Vice President of Mortgage Insurance and Risk Services

Sure. This is Derek. So in terms of sustainability, I mean, I think we have heard similar things. I don't think we have reason to believe that.

The market is kind of backing up from our ability to distribute risk at this point. We haven't heard anything to get this bad indication. Again, when you look at the returns from a reinsurer's perspective, the credit quality is very good that would bring in the portfolio. It's outperforming kind of our through the cycle expectations.

So when you look at it from that perspective, it is still strong business. There's also I think uncapped reinsurers, still haven't gotten into the market yet as well, which gives opportunities.

Phil Stefano -- Deutsche Bank -- Analyst

OK. No -- and the comment wasn't from a performance perspective, so apologies, it came across. So -- and maybe switching gears and a quick one on Services. So I guess I was under the impression that the guidance at least for a margin, at the investor day, they commented, this year.

And it feels like this year means an exit run rate. So do we feel like 2020 will be able to have tangible evidence that the turnaround is working and it has been completed? Or how should we think about what 2020 looks like if we're confident that leaving 2019, all cylinders will be firing.

Rick Thornberry -- Chief Executive Officer

Yes. I don't think -- thank you, Phil. This is Rick. I don't think that we've given any guidance for 2020.

But we do see progress across our businesses that we feel very positive about, both in term -- specifically, we can see each of the activities across our mortgage and real estate and title businesses growing. And keep in mind, each of these activities are all at a kind of different level of maturity and require different types of investment. And we -- here's an example, our title business was essentially in a kind of a start-up, if you will, we bought a couple of properties, put them together in Radian Title Insurance and Radian Settlement Services. And we are starting to see significant momentum on that business from a customer point of view and feel very good.

Same thing around the real estate side and obviously, on the due diligence business, the securitization market has been expanding. So I think, overall, we feel good about the businesses and how they're positioned to go forward. And I think as I have mentioned, I believe the real estate and title businesses probably and I think I've talked about on investor day, given the data and analytics and technology, focus around those businesses, I think we are really truly building value in those businesses for our shareholders, even ahead of earnings. But earnings continue to develop, and we remain positive about the development of those businesses.

So I think we are not here to give guidance today on 2020. But we do feel that our run rate guidance that we've given I think last fall was when we stated it, probably in October or November, we continue to standby that guidance.

Phil Stefano -- Deutsche Bank -- Analyst

OK. One quick confirmation question, Frank. The amortization of single premiums that changed and caused the couple of one-timers, those were one-timers for second quarter. There's no reason that third quarter would be impacted by any of that change in the amortization schedule.

Is that right?

Frank Hall -- Chief Financial Officer

I'll answer it technically. Technically, it's an accounting estimate that gets reviewed from time to time. So I'd hate to say it won't be adjusted again, but, yes, an adjustment of this magnitude I think reflects the current landscape and our analysis of the portfolio. So I would expect any adjustments to that to be infrequent.

Phil Stefano -- Deutsche Bank -- Analyst

Infrequent and immaterial, but -- at least next couple of quarters. Perfect.

Operator

Because currently we have no additional questions in queue at this time, please do continue.

Rick Thornberry -- Chief Executive Officer

OK. Well, first of all, I want to thank our team on an excellent quarter and great momentum that the company is experiencing today. I appreciate everybody at taking time for our call today and your continued interest in Radian. And I look forward to seeing each of you very soon.

Take care.

Operator

[Operator signoff]

Duration: 74 minutes

Call participants:

Emily Riley -- Senior Vice President of Investor Relations

Rick Thornberry -- Chief Executive Officer

Frank Hall -- Chief Financial Officer

Jack Micenko -- Susquehanna International Group -- Analyst

Geoffrey Dunn -- Dowling and Partners -- Analyst

Derek Brummer -- Senior Executive Vice President of Mortgage Insurance and Risk Services

Mark DeVries -- Barclays -- Analyst

Bose George -- KBW -- Analyst

Sam Choe -- Credit Suisse -- Analyst

Chris Gamaitoni -- Compass Point Research -- Analyst

Mihir Bhatia -- Bank of America Merrill Lynch -- Analyst

Mackenzie Aron -- Zelman and Associates -- Analyst

Phil Stefano -- Deutsche Bank -- Analyst

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