First American's 2Q Net Income Up 9.5% on Record Margin

Dana Maione

First American Financial Corp. had net income of $102.1 million for the second quarter, up 9.5% from $93.3 million in the same period in 2015, as its title segment reported its highest pretax margin ever.

The title insurance business had total revenue of $1.26 billion, up from $1.23 billion, with a pretax margin (income before taxes as a percentage of the total revenue) of 13.7% compared with 12.6% one year prior.

There were 347,800 residential title insurance direct orders opened, up from 335,200 in the second quarter of 2015.

This increase was due to more refinance transactions. "Lower interest rates drove residential refinance opened orders up 20%. This trend accelerated into July, contributing to a strong pipeline for the second half of 2016," said CEO Dennis Gilmore in a press release on Thursday.

But title insurers earn much less on a refi order than on a purchase order. At First American, average revenue for the period for a refi was $879, compared with $2,138 for a purchase order.

On the commercial side, First American had total revenue of $166.5 million, down from $170.1 million a year ago. But the average revenue per order was slightly higher, $8,400 versus $8,200.

Separately, competitor Stewart Information Services Corp. had second-quarter net income of $23.6 million, up from $17.1 million one year prior.

In the first quarter of 2016, Stewart lost $11.2 million due to its exit from the delinquent loan services business.

The most recent quarter includes a $5.4 million net reduction in its policy loss reserve compared with a $7.3 million net reduction last year.

Pretax margin, which does not include the policy loss reserve reductions, increased to 7.5% from 6.7%.

However, title segment revenue declined nearly 6% to $467.9 million from $497.2 million. Lower revenue from business generated through independent agencies was the reason, said CEO Matthew Morris in a press release.

Residential opened orders for the quarter declined to 108,390 from 115,893, although purchase orders did increase to 71,429 from 70,970.

Even though refi orders did decline, "we believe we are well positioned to benefit from the much improved outlook for refinancing transactions over the coming quarters," said Morris.

Stewart's cost management program helped the company during the quarter as total employee costs declined at a higher rate than the decline in total operating revenue, 10.9% versus 8.2%.