RADIAN GROUP INC (RDN)·Q2 2025 Earnings Summary

Executive Summary

• Q2 delivered solid profitability: GAAP diluted EPS $1.02 and adjusted diluted net operating EPS $1.01; adjusted EPS beat S&P Global consensus ($0.98) while total revenues of $318.0M missed ($324.9M) as “All Other” results were pressured by mortgage conduit marks (consensus marked with asterisks; see Estimates Context).
• Credit trends remained favorable: default rate fell to 2.27% (down 6 bps QoQ), loss ratio improved to 5.1%, and prior-period reserve releases remained robust at $36M, supporting earnings quality .
• Production re-accelerated: NIW rose to $14.3B (+51% QoQ; +3% YoY) and primary IIF reached an all‑time high of $276.7B, with premium yields broadly stable (MI in-force yield 37.8 bps; total net MI yield 33.9 bps) .
• Capital return and flexibility are key catalysts: $223M of buybacks in Q2, quarterly dividend of $0.255/share, $784M holdco liquidity, and a new $750M repurchase authorization (total remaining authority ≈$863M including prior program) .

What Went Well and What Went Wrong

What Went Well

• Strong credit quality and reserve releases: cures exceeded new defaults; loss ratio fell to 5.1% with $36M of favorable development, underpinning earnings quality .
• Production and portfolio growth: NIW rose to $14.3B and primary IIF reached $276.7B, both supporting future earnings power; persistency remained solid at ~84% .
• Shareholder value focused capital allocation: $223M repurchases in Q2; board added a fresh $750M buyback authorization, reinforcing commitment to capital return .
• Management tone: “We reported strong performance… book value per share up 12% YoY… primary mortgage insurance in force… all-time high of $277 billion,” – CEO Rick Thornberry .

What Went Wrong

• Revenue miss vs consensus amid “All Other” pressure: consolidated revenue $318.0M vs ~$324.9M consensus; adjusted PBT in All Other swung to a ~$16.4M loss, driven by mortgage conduit marks and higher volume-related expenses .
• Operating expense step-up: other operating expenses rose to $89M (+$12M QoQ) due to timing of annual share-based grants; MI expense ratio increased to 29.7% (from 24.8% in Q1) .
• Mortgage conduit volatility: management cited spread widening (esp. IO) and pipeline growth; the combined impact on All Other was ~-$9M in Q2, elevating investor focus on variability outside core MI .

Financial Results

Estimates vs Actuals (Q2 2025):

• Adjusted/Primary EPS: Actual $1.01 vs Consensus ~$0.98* → beat .
• Total Revenues: Actual $318.0M vs Consensus ~$324.9M* → miss .

Notes: Primary EPS Consensus Mean approximates adjusted EPS. Values with asterisks retrieved from S&P Global.

Segment performance (selected):

Selected MI revenue components:

KPIs and Operating Metrics

Guidance Changes

Earnings Call Themes & Trends

Management Commentary

• Strategy and performance: “We increased book value per share by 12% year over year… primary mortgage insurance in force… all time high… our mortgage insurance portfolio delivered strong credit performance with cures exceeding new defaults” – CEO Rick Thornberry .
• Premium yields and persistency: “In‑force premium yield remains stable at 38 bps… with current rates, we expect persistency to remain strong” – CFO Sumita Pandit .
• Credit reserves: “Maintained initial default-to-claim rate of 7.5%; $48M provision for new defaults offset by $36M favorable development, net expense $12M vs $15M in Q1” .
• Capital return and liquidity: “Repurchased ~13.5M shares in 1H25; holdco liquidity $784M; undrawn $275M revolver; expect RG to pay up to $795M total distributions in 2025” .

Q&A Highlights

• Holding company liquidity buffer: Management “comfortable” with current liquidity despite step-down due to opportunistic repurchases; leverage <20%; visibility to RG cash flows supports flexibility .
• Sustainability of $795M RG distributions: Driven mechanically by prior-year statutory net income; aim to maximize ordinary dividends, but no forward income guidance provided .
• Mortgage conduit marks: Spread widening (esp. IO) and higher pipeline drove ~-$9M impact in Q2; acknowledged volatility; teams working on growth and path to positive contribution .

Estimates Context

• Coverage depth: EPS (6 ests), Revenue (2 ests)*.
• Potential estimate revisions: Stable premium yields, stronger NIW, and improving loss ratio argue for resilient EPS; however, continued “All Other” volatility (conduit marks) may prompt modest revenue mix reassessments and below-the-line variability in models .
  Values with asterisks retrieved from S&P Global.

Key Takeaways for Investors

• Core MI engine remains durable: premium yields stable, credit trends favorable, and IIF at record levels support steady earnings power despite seasonal dynamics .
• EPS quality underpinned by reserve releases and low claims; watch default inventory trajectory and cure rates into 2H seasonality .
• Revenue miss was largely “All Other”-driven; conduit marks can be volatile—risk factor outside core MI to monitor each quarter .
• Capital return remains a central pillar: $223M Q2 buybacks, ongoing dividend, and a new $750M authorization provide tangible support for shareholder returns .
• Operating expenses guided to ~$320M for FY25 (−8% YoY), implying operating leverage as volumes recover; Q2 step-up was timing-related .
• Near-term trading lens: EPS beat vs revenue miss; watch pricing environment, NIW cadence, and any further conduit valuation noise; capital actions and buyback deployment are likely stock catalysts .
• Medium-term thesis: Elevated persistency and sustained MI pricing discipline, plus PMIERs cushion (~$2.0B), position RDN to continue compounding book value while returning significant capital through cycles .