It’s not just mortgage originators feeling the sting of the recent downturn in the housing market. First American Financial Corp. can attest to that.
The provider of title, settlement, and risk solutions for real estate transactions on Thursday reported weaker-than-expected earnings for the fourth quarter of 2022, posting net income of $54 million, or 52 cents per diluted share, down nearly 80% from $260 million, or $2.33 per diluted share, in the fourth quarter of 2021.
Analysts had expected earnings of $1.32 per share, according to figures compiled by Thomson Reuters. Analysts' estimates typically exclude special items.
Earnings for the full year also were down nearly 80%, falling to $263 million, or $2.45 per diluted share, from $1.24 billion, or $11.14 per diluted share, for all of 2021.
Total revenue for the fourth quarter was $1.7 billion, down 29% from the fourth quarter of 2021, the company said. Commercial title revenues fell 34 % to $251 million.
Net investment losses in the current quarter were $114 million, or 83 cents per diluted share, compared with a net investment gain of $7 million, or 5 cents per diluted share, in the fourth quarter of last year. The company said net investment losses in the current quarter were primarily due to the sale of fixed-income securities related to the company’s tax planning efforts and unrealized losses in our venture portfolio.
It added that the tax rate in the fourth quarter of 2022 was 6.9%, but excluding $114 million in net investment losses the tax rate was 18%.
“The on-going, cyclical decline in the real estate market adversely impacted our fourth quarter results,” said Ken DeGiorgio, First American CEO. “However, our expense-management efforts and continued growth in investment income helped mitigate the impact of the challenging business environment. For the full year of 2022, we delivered a title segment pretax margin of 10% or 11.8% excluding net investment losses.”
Other quarterly highlights:
- The Title Insurance & Services segment reported investment income of $132 million, up 169% compared with last year. The segment had a pretax margin of 7.1%, or 10.4% excluding net investment losses.
- Home warranty had a pretax margin of 13.9%, 18.4% excluding net investment losses.
“Although current market conditions remain difficult, we are seeing early indications of stabilization in the purchase market and we believe the company is well positioned to emerge even stronger when the current down cycle ends,” DeGiorgio said. “Our strong balance sheet allows us to continue to invest in strategic initiatives and pursue acquisitions to deliver long-term growth, as well as return capital to shareholders. In 2022, we returned $658 million to our shareholders through share repurchases and dividends.”
