Q2 2025 First American Financial Corp Earnings Call
Greetings, and welcome to the first American Financial Corporation second quarter earnings conference call at this time. All participants are in a listen-only mode. A brief question and answer session will follow the formal presentation.
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a copy of the of today's press release is available on first American website at
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Speaker Change: We will now turn the call over to Craig Barbaro vice president and rescue relations to make an introductory statement.
Speaker Change: Good morning everyone and welcome to first Americans earnings conference call for the second quarter of 2025.
Speaker Change: Joining us today on the call will be our chief executive officer, Mark Satan and Matt Wagner Chief Financial Officer.
Speaker Change: Some of the statements made today may contain forward-looking statements that do not relate strictly to historical or current fact.
Speaker Change: These forward-looking statements speak only as of the date. They are made. And the company does not undertake to update forward-looking statements to reflect circumstances or events that occur. After the date, the forward-looking statements are made.
Speaker Change: Risks and uncertainties exist. That may cause results to differ materially from those set forth in these 4 looking statements.
Speaker Change: For more information on these risks and uncertainties, please refer to yesterday's earnings release.
Speaker Change: And the risk factors discussed in our form 10K and subsequent SEC filings.
Speaker Change: Our presentation today contains certain non-gaap Financial measures that we believe provide additional insight into the operational efficiency and performance of the company relative to earlier periods and relative to the company's competitors for more details on these non-gaap Financial measures, including presentation, with and Reconciliation. To the most directed comparable gaap financials. Please refer to yesterday's earning release.
Speaker Change: which is available on our website at www.firstam.com
Speaker Change: I will now turn the call over to Mark Eaton.
Mark Eaton: Thank you, Craig.
Mark Eaton: And thank you to everyone joining our call today. I will provide a brief review of our earnings, discussed our Market Outlook, and conclude with some thoughts on Capital Management.
Mark Eaton: Today we announced our second quarter adjusted earnings per share of a dollar 53 cents. This result includes the impact of 12 cents. Per share related to Executive separation costs.
Mark Eaton: Our earnings were strong despite continued challenges in the US housing market.
Mark Eaton: Our performance. This quarter was highlighted by continued strength in our Commercial Business.
Mark Eaton: Commercial Revenue was up 33% and we set an all-time record in our National Commercial Services Division for fee per file in a quarter.
Mark Eaton: We are seeing broad-based strength in commercial. Again this quarter led by industrial which includes data center transactions and multi-family
Mark Eaton: we're also seeing a continued shift toward refinance in commercial.
Mark Eaton: This quarter, it was 46%.
Mark Eaton: The sales underwriting closing and operations team to drive our Commercial Business are the best in the industry. They deal with complex multi-site multi-state and sometimes cross border transactions while skillfully underwriting risk and providing amazing service and transparency to our clients.
Mark Eaton: Our Commercial Business also drives much of our escrow deposits, which helped Drive investment income.
Mark Eaton: Investment income grew 7% this quarter.
Mark Eaton: Investment income and our bank in particular continues to be a counter cyclical earnings driver. While the residential Market is at the trough
Mark Eaton: The residential side of our business continues to navigate through difficult market conditions, our purchase Revenue declined, 3% driven by lower demand for new homes.
Mark Eaton: It's been a tough purchase market for the last 3 years, due primarily to home affordability issues, and elevated mortgage rates.
Mark Eaton: But it's purchase volumes returned to the trend line. We are very well positioned given our operating leverage and strength with local real estate professionals, who Drive Purchase volumes.
Mark Eaton: Refunds Revenue was up 54% this quarter, but it's going off a low base and represents just 5% of our direct Revenue.
Mark Eaton: Be opened orders. We are seeing in July, tell a similar story to what we have experienced so far this year with strong commercial activity outpacing, a sluggish residential market for the first 3 weeks in July, our open purchase orders are down 8%. While our refinance orders are up 29%,
Mark Eaton: Commercial orders are up 13% so far this month, setting us up well for a strong back, half of the year.
Mark Eaton: Our home warranty business posted very strong results. Our pre-tax income was up, 35% driven by a lower loss rate and we continue to drive Revenue growth through our direct to Consumer Channel.
Mark Eaton: This quarter, we ramped up our share repurchases. And in July, our board of directors approved, a new million dollar share repurchase authorization,
Mark Eaton: We are at the very beginning of the next cycle and are poised to outperform given our unique assets and the productivity improvements. We expect to achieve related to our investments in data technology and AI. Now, I would like to turn the call over to Matt for more detailed review of our financial results.
Matt: Thank you, Mark, this quarter, we generated Gap. Earnings of a141 per diluted share, our adjusted earnings, which exclude the impact of net investment, losses, and purchase related. Intangible amortization was a $153 per diluted share.
Matt: Both our Gap and adjusted earnings include a 13 million or 12 cents per diluted share, 1 time, expense related to Executive separation costs.
Matt: Which was recorded in the corporate segment Revenue in our title. Segment was 1.7 billion up 13% compared with the same quarter of 2024.
Commercial Revenue was 234 million a 33% increase over last year, our closed orders increase 2% from the prior year and our average revenue per order was up 30% due to continued to broad-based strength, across both asset class and transaction size.
Matt: Purchase Revenue was down 3%, during the quarter driven by a 6%, decline in closed orders, partially offset by a 2% Improvement, in the average revenue per order.
Matt: Refinance Revenue was up 54% compared with last year, due to a 44% Improvement in closed orders. And a 7% increase in the average revenue per order.
Matt: Refinance, accounted for just 5% of our direct Revenue, this quarter and highlights how challenged this Market continues to be.
With mortgage rates hovering between 6 and 1/2 and 7%.
Matt: In the agency business Revenue was 717 million.
Matt: Up 16% from last year. Given the reporting lag in agent revenues of approximately 1 quarter, these results primarily reflect remittances related to first quarter economic activity.
Matt: Information and other revenues were 264 million. During the quarter up, 10% compared with last year, primarily due to our Canadian operations, continuing to see higher refinance activity.
Matt: Investment income with 147 million in the second quarter of 21 million compared with the same quarter of last year. Primarily due to higher interest, income from the company's Investment Portfolio and an increase. In average interest-bearing deposit. Balances, partially offset by the FED, cutting rates by 100 basis points. In the second half of 2024,
% of title premiums in escrow fees, unchanged from the prior year. The second quarter rate, reflects an ultimate loss rate of 3.75% for the current policy year and a net decrease of 10 million in the loss. Reserve estimate for prior policy years.
Matt: Pre-tax margin in the title segment was 12.6% or 13.2% on an adjusted basis. Turning to the Home Warranty segment, total revenue was $110 million this quarter up 3% compared with last year, the loss ratio was 41% down from 46% in the second quarter of 2024, the Improvement in the loss, ratio was driven by lower claim frequency, which was partially offset by higher claim. Severity, pre-tax margin in the home warranty, segment was 20.2% or 20.7% on an adjusted basis.
Matt: The effective tax rate in the quarter was 24.6%, which is slightly above the company's normalized tax rate of 24%.
Matt: Our debt to Capital ratio was 32.1%.
Matt: And excluding secured financing, payable. Our debt to Capital ratio was 23.1%.
Matt: In the second quarter, we repurchase 1 million shares for a total of 61 million at an average price of 57.95 cents.
Matt: So far in July, we repurchased 577,000 shares for 32 million at an average price of $66.19.
Matt: Now, I would like to turn the call back over to the operator to take your questions.
Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2. If you would like to remove your question from the queue for participants using speaker equipment and maybe necessary to pick up your handset, before pressing the star Keys 1 moment, please while we pull for questions.
Our first question comes from the line of Mark this rise with doe Bank.
Matt: Please proceed with your question.
Uh, yeah, thank you. Um, could could you describe uh, you know, the source of strength and the commercial RPO that you're seeing, you know, and how the transactions that that drove you to that outcome, compared to, um, you know, to what's in your pipeline today?
Matt: Yeah, sure sure thing. Mark, thanks for the question. Um you know the interesting thing is you know commercial we we definitely look at the order counts. And Order counts are up and it's setting us up for back, get back after the year. But what matters a lot more is the fee for file. And when you look at our
Matt: Our commercial Revenue growth, this quarter, our revenue is up 33%. We're closing the same amount of orders we did last year, our orders are only up 2%, but the fee per file for commercials of 30%. So, to your point, I mean, we're getting a lot more high quality,
Matt: Uh, you know, and just higher liability transactions. And it's coming from a broad array of asset classes. Our biggest asset class, uh, this quarter was industrial. Um, our second biggest was multi family. We're seeing a lot of a data center deals. Um, we closed 11 transactions, you know, with a premium over a million dollars. So we're getting a lot of big deals but commercial is also driven by just you know, the smaller commercial deals and we're seeing a lot of uh you know of those come through too. So I would just say you know, it's hard to pinpoint 1 thing. It's just real broad-based strength that we're seeing and we're getting a lot of high quality deals and we feel really good about our pipeline heading into the second half of the year. And 1 thing that's going to help us too. Is, um, you know, this this 1 big, beautiful bill, I mean there were certain, you know, tax incentives that are going to go away for certain renewable energy credits next year. And so we think there's going to be kind of an acceleration of of deals that closed in Q4 to take advantage of those, those credits. So,
Matt: So, I think we're, you know, we're pretty, we're pretty positive about the Outlook. Now, the 1 thing too, is the comps are going to get tougher here, cuz, you know, we had a really strong back half last year, really strong Q4. But I, but we we feel really good about about the outlook for commercial for the rest of this year.
Okay, great. Um, and you also referred to kind of an increase in the percentage of commercial that's coming from refi, what what's causing that is this somewhat of a secular change or is there just some kind of cyclical component to this?
Matt: So, um, it's it's a little bit lumpier and we're, you know, we're we're we're overweight refi now but eventually that'll that'll get back to the the normalized trend line.
Matt: Of 30%. Okay. And and that's helpful. Just you mentioned, you think you were kind of in the middle of that wall. How much longer do you think it? It kind of extends before it becomes a bit of a, a headwind, probably probably another year. It's it's hard to tell, you know, but we're, it's been sort of ramping up over the last year and we think we probably got in there a year ago.
It won't last forever, but we're definitely in the middle of it.
Matt: Okay great. Uh, thank you.
Speaker Change: Thank you a lot more.
Matt: Thank you.
Speaker Change: All right. Next question comes from the line of Maxwell. Fischer with true Securities. Please receive with your question.
Speaker Change: Yeah, good morning, thank you. Um, 1 for Mark Hughes, uh, you had pointed to the higher refinance activity in Canada. Uh, what is your judgment on the durability there? And maybe could you size the contribution from that this quarter?
Speaker Change: Yeah, thanks for the question. This is Matt, um, you know, we expect, um, the refi business in Canada to be strong for the remainder of the year. So, um,
Speaker Change: You know the growth that we've seen in info and other is largely driven by Canada and the refi business that they're seeing. And the growth that we saw, this quarter is a good proxy for the growth that we expect to see for the full year.
Speaker Change: Thank you. And then and then moving to to home warranty. Um, how how do you see the competitive environment there? And then what are your observations around the loss environment? You're called out lower frequency. Um was that driven by weather or or any other underlying factors you're seeing?
Speaker Change: well, you know, there's a lot of
Speaker Change: but we got a great team um and we continue to grow our business even even despite the fact that, you know, the real estate markets are challenged.
Speaker Change: I would say with home warranty, they had a really good result, this quarter, a lot of things went, right? Uh, frequency of claims was down, it's down for a couple reasons. 1, we did have further favorable weather conditions so that always helps. Uh, and the second thing I would say is we have we have fewer contracts in for us now than we did a year ago. Um, just because of we've got 2 channels, the Real Estate Channel, the direct to Consumer Channel, The Real Estate Channel, you know, is, is down just like everything else. But the, the direct consumer channel is growing, but we have fewer contracts, you have fewer contracts. You, you have fewer claims. So frequency is down and because frequency is down, we can push our claims to our higher quality contractors. And so we've able to, um, kind of hold the
Speaker Change: Lying with severity and and frequencies down and and as a result we have a have a lower claims ratio. I'd say the other thing that happened is of all the businesses that we have home warranty is is the 1. We were a little bit worried about you know, inflation pressures because we're buying HVAC equipment and different things and and those were going to be subject to inflation. So um, you know, a year ago we raised our prices in anticipation of inflation on the cost side of things. And so but we haven't really seen the inflation yet. So we're sort of getting the benefit of the price increase as we put in. Haven't seen inflation yet. On the claim side, but we feel like it's coming. It's lagged. We feel like it's going to it's going to kind of come here in the back half of the year. But those are, you know, a combination of things that kind of led to, you know, really strong loss, ratios this quarter.
Speaker Change: Understood. Thank you for taking my questions.
Maxwell: Thanks Maxwell.
Speaker Change: Thank you.
Speaker Change: Our next question comes from the line of Terry Mao with barklay, please, proceed with your question.
Hey, thank you. Good morning. Um, wanted to start off on a margin and it obviously came in pretty strong this quarter. I think it was up about 140 basis points year-over-year
Speaker Change: Um I guess as we kind of look forward to the second half of the year, how sustainable is that particularly if commercial kind of remains strong?
Hey Terry. This is Matt. Um, thanks for the question. Um, yeah. Like, as you noted, we we had a, we posted a strong margin this year for the first half of this year. If you compare it to the first half of last year, we're up about 220 basis points in margin, um, year to date. Um, and as Mark mentioned earlier, really, the back, half the comparisons are going to get to be a lot more. Um, challenging. So we feel like we're going. We believe we're going to finish the full year out with um, you know, improved margins compared to last year. But I think that Gap that you just mentioned is going to start to narrow in the second half of the year.
Speaker Change: Got it, that that's helpful. Um do you have any updates on the technology investment Sequoia and end point um in the sense of kind of like roll outs and success rates? Thank you.
Speaker Change: Yeah, thanks. Thanks Terry. Um, we're we're still making really good progress. On both fronts on both end points and Sequoia. Um,
Speaker Change: You know, I I would just say that, you know, we've got great teams, we're we're really making progress on developing the products.
uh, I think in terms of endpoint, um we're working on implementing the technology throughout our, you know, our entire, you know,
Speaker Change: Branch Network and we're in the very early stages of that. We're going to start.
Speaker Change: Um, piloting, the new technology in an office in December. And we're going to start start putting it in the hands of our of our direct operations, you know, at some point in the first quarter and we'll see how it goes. Um, so the technology it's working, we think it's going to really, you know, improve things in a lot of different fronts. We'll, we'll talk more about this. When we actually have some, some, some data to show, but the National Rollout is going to start in in, in queue in q1 and and we'll, we'll kind of take it from there. I think on the Sequoia side.
Speaker Change: You know, we're making, we're still making really good progress. We're in, we're in 3 markets right now, we've piloted it and it's tough to, you know, we have instant decision for purchase. It's, it's very difficult, but we've been keeping every time we get a hurdle, we keep jumping over it, and I think we're going to get there at at 1 point, so it's Sequoia. We're still building out our capabilities to, you know, provide instant decisioning for purchase transactions. So we're building out the capabilities, we're letting the groundwork to roll it out through all of California. So we're making those plans now. And the 1 thing that
You know, if you can automate the purchase transaction. You can automate the refinance transaction and so with Sequoia, we're also um kind of rolling out our refinance Automation in September so we're making. We're making a really good progress on on both fronts. They're both long-term. Uh they're not going to you know, we're not going to, you know, our margin is not going to jump dramatically, you know, next quarter the quarter after that. But when we look out you know 2 or 3 years we feel like these are going to be you know differentiated Solutions relative to the industry. We're really excited about it. So we'll we'll we'll talk more about it when we have some more tangible progress after we can you know, actually demonstrate, you know what we've done. Not really you know lab or in a pilot but more of a in in the broader company
Thanks for the question, Terry.
Speaker Change: Thank you.
Speaker Change: And as a reminder, if anyone has any questions, you may press star 1 on your telephone keypad to join the queue.
Speaker Change: All right, next question comes from the line of uh Bose doors with KBW. Please proceed with your question.
Sorry guys, I'm on mute, sorry. Um, good afternoon. So just following up on the question on margins, you know, it makes sense that the Gap will narrow, um, in the back half of the year but just looking at your 13.2% margin
Speaker Change: You did this quarter. Is there any reason the margin in the third quarter should be lower than that? I mean, just yeah, it just looks like the trends are similar so it could be expected similar number in the third quarter.
Speaker Change: Well, you know, I think a big part of that is, you know, it's really going to depend on the strength of the commercial business, right? Um, again, we we set records in Q2 I think that there's a chance it could be higher. I don't think that's our expectation right now. But, you know, because I think when you look at the typical seasonal Trend, you know, Q3 might be, you know, on par with Q2 but we had such a strong Q2 in commercial. If we have something like that or stronger in Q3, I think there's a chance that we can, you know, we can approach that. But that's not our expectation right now. So it really just it's it's just going to depend on Commercial. I think it's going to be the the biggest driver. And that's a little bit unknown right now.
Speaker Change: It's going to be strong. We're just not sure how strong
Speaker Change: Yep. Yep. Okay no good that's helpful. Thanks. And then just switching to the uh regulatory front. Can you just give us any uh update on the fhfa title pilot? Have you interacted with Bill? Py just you have any any caller there.
Yeah, yeah, thanks both. Uh, you know the the pilot is
Speaker Change: Time. Um, and so we're we're we're we're definitely monitoring the situation. We'll see how things develop
Speaker Change: So okay, great. And then just in terms of the way, so just with the pilot, I guess it's supposed to go to some like, I guess later next year. So is the way this plays out is fhfa. Presumably Waits. Now for the pilot to be done and then, you know, decides at some point in late 26, how to proceed from here?
yeah, so so it goes the rest of this year and and through to 2026 and it's a pilot and so they'll evaluate the results and whether it was successful or not and and make a determination at some point at some point after that,
Speaker Change: Okay, and then I would just say too, I would just say too. I mean, we're not involved, you know, in the pilot at this point. But, you know, we have, you know, if, if this is the way that the the market decides to go, I mean we've got very unique assets with our
Speaker Change: Just with our data, our title plans, we've got higher coverage than anybody else. And uh, we have our distribution network is this is a title waiver pilot, but you still have to close the transaction and um, and given our distribution Network and our, you know, our our underwriting expertise. I mean, I think we've got real advantages if if this is the way the market decides to go,
Speaker Change: So okay, makes sense. Thanks
Speaker Change: Okay, thanks a lot B.
Speaker Change: Thank you.
And there are no additional questions at this time.
Speaker Change: That concludes, this morning's call we'd like to remind listeners that today is called will be available for replay on the company's website.
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