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First American 2Q Earnings Fell Nearly 64% YOY

David Krechevsky
Jul 28, 2022
First American Financial Corporation New Logo.

CEO says company reduced staff as it focuses on expense management.

First American Financial Corp. today reported that net income in the second quarter of 2022 increased 11.2% from the previous quarter, but fell 63.9% year over year.

The Santa Ana, Calif.-based provider of title, settlement, and risk solutions for real estate transactions reported net income in the second quarter was $109 million, or $1.01 per diluted share, up from $98 million, or 88 cents per diluted share, in the previous quarter. However, that second quarter net income was down significantly from $302 million, or $2.72 per diluted share, in the second quarter of 2021.

Total revenue of $2.1 billion was up 1.4% from the previous quarter but down 9% from the first quarter of last year. Revenue fell in part due to net investment losses of $133 million in the quarter, primarily due to a decline in the fair value of marketable equity securities, the company said.

Excluding net investment losses, total revenue was $2.2 billion, up 1% from a year earlier.

The Title Insurance and Services segment investment income was $70 million in the second quarter, up 49% from last year, while commercial revenues of $289 million were up 30% year over year.

“Our second-quarter business results were strong, with our title segment delivering a pretax margin of 13.9%, excluding net investment losses,” First American CEO Ken DeGiorgio said. “Total revenue, excluding net investment losses, was up 1%, as continued strength in the commercial business, growth in investment income, and revenue from recent acquisitions offset the decline in residential refinance and purchase activity.”

He said the company is taking steps to shield itself from the ongoing economic uncertainty.

“Given the decline in residential real estate activity and uncertainty in the economic outlook, we are maintaining our focus on expense management, particularly in business units most impacted by the decline in residential transactions,” DeGiorgio said. “While we continue to effectively manage our cost structure, we also remain steadfastly committed to investing in strategic initiatives that support our company’s growth and operational efficiency, including our digital closing and title automation initiatives, and the expansion and enhancement of the data assets that fuel them.”

First American said its personnel costs were $613 million in the second quarter, up 10% from the same quarter of 2021, primarily due to the impact of recent acquisitions. Excluding those acquisitions, personnel costs fell by $3 million due to lower incentive compensation and  employee benefit and overtime costs. 

In May, First American completed its acquisition of Mother Lode Holding Co., a California-based provider of title insurance, underwriting, and escrow services for residential and commercial real estate transactions.

The lower costs were largely offset by higher salary expenses and $10 million in severance expenses incurred as part of a reduction in force this quarter. It did not provide further details.

DeGiorgio said the company also continues to “prioritize share repurchases, acquiring 3.9 million shares for a total of $227 million during the quarter,” while adding that through July 27, it had acquired an additional 963,000 shares. 

“Since the beginning of the year, we repurchased approximately 6% of our shares outstanding as of the end of last year,” he said. “Reflecting its confidence in the long-term prospects of our company, our board recently approved a new $400 million share repurchase authorization which enhances our capital deployment flexibility going forward.”

This morning, First American’s stock was trading around $59 per share, well below its close at $80.64 on Jan.13, 2022.

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