Despite recording stronger financial results during the second quarter of 2023 than the first, executives at both First American Financial and Old Republic did their fair share of bellyaching over current housing market conditions during their firms’ Q2 2023 earnings calls on Thursday.
“We posted good results in the second quarter given the continuing market headwinds,” Ken DeGiorgio, the CEO of First American, told investors and analyst’s during the firm’s second quarter earnings call. “Demand in our residential purchase business continues to be pressured by affordability issues due to high mortgage rates along with low inventory that has kept home prices elevated. The purchase market, however, appears to have stabilized albeit at trough levels.”
Even with the unfavorable housing market conditions, DeGiorgio’s firm still recorded a total revenue for the second quarter of $1.6 billion and $138.5 million in net income. Although total revenue was down 20% year over year, First American’s net income was actually up nearly $30 million compared to a year ago. This increase came thanks in part to a strong quarter for the firm’s home warranty segment and the firm’s mortgage subservicing company ServiceMac turning its first quarterly profit (specific financial results for ServiceMac and Endpoint were not announced).
Results for First American’s title segment were not as strong. The title segment’s quarterly revenue of $1.53 billion was down 25% year over year, and its pretax income of $185.7 million was down from the $240.7 million in pretax income recorded during the second quarter of 2022. These decreases came as the total number of closed title orders for the quarter dropped to 128,300 from 205,000 a year ago. This decrease, plus the drop average revenue per commercial order from $13,200 to $11,600, was partially offset by a 1% annual increase in revenue per order to $3,640.
“We expect transaction activity in the second half of the year will be better than the first which is consistent with normal seasonal patterns,” DeGiorgio said. “While our key purchase, commercial and refinance market appear to have troughed, the timing of a recovery in these markets remain unclear.”
In addition to their strong financial results, First American executives were also pleased to announce some advancements in the firm’s instant title product, informing listeners that they expect it to be ready for roll out in two counties in early 2024.
“I would anticipate that we will have a national roll out probably within the next couple of years, as our development efforts progress,” DeGiorgio said. “I think there are a couple of aspects of the product that will drive results for it. There will be efficiency gain and again the precise amount remains to be seen, but there will certainly be efficiency gains. But I think a big part of this will be improvement in the customer experience, which we think ultimately will drive market share gains. Customers want to know early if there are title issues that are going to need to be resolved and we are going to be able to indicated to them initially or even before the order is placed whether or not there is going to be a title issued or whether or not we can issue a commitment.”
Like at First American, Old Republic executives also said they were pleased with their firm’s performance given the “strong market headwinds.”
During the second quarter of 2023, Old Republic reported a total revenue of $1.79 billion, down from $1.81 billion a year ago. Despite this drop in revenue, the firm’s net income for the quarter was $155.5 million, up from a $40.1 million net loss recorded a year ago. The rise in net income also came as Old Republic’s reported a 36.9% annual decrease in title insurance net premiums and fees generated to $649.6 million and a 68.3% year-over-year drop in pretax title income to $34.7 million.
Executives attributed the resilience of the firm’s overall financial results to a strong quarter for its general insurance segment.
“Our 2023 results compared to 2022 reflect the economic headwinds continuing to affect the volume of transactions in our market,” Carolyn Monroe, the president of the firm’s title segment, told investors and analysts during Old Republic’s first-quarter earnings call Thursday afternoon. “We are continuing to work to manage costs in response to market revenue levels while keep a focus on longer term strategic initiatives.”
Moving forward, Monroe said the firm is focusing on streamlining operation efficiencies and developing products and services to better serve clients in the current market conditions as well as in the future.
While Old Republic does not break out its commercial versus residential title order volumes, executives noted that commercial title volume was down 37% year over year, but still represented 22% of premiums earned in Q2, the same as a year prior.
“In prior quarters commercial was still coming in strong and this quarter we saw it catch up to residential,” Craig Smiddy, the firm’s CEO, said regarding the headwinds the commercial real estate segment is now facing.