First American Financial Q2 2025 Earnings Report

First American Financial EPS Results

• Actual EPS: $1.53
• Consensus EPS: $1.40
• Beat/Miss: Beat by +$0.13
• One Year Ago EPS: $1.27

First American Financial Revenue Results

• Actual Revenue: $1.84 billion
• Expected Revenue: $1.78 billion
• Beat/Miss: Beat by +$63.68 million
• YoY Revenue Growth: +14.20%

First American Financial Announcement Details

• Quarter: Q2 2025
• Date: 7/23/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 24, 2025
• Conference Call Time: 11:00AM ET

First American Financial (NYSE:FAF), through its subsidiaries, provides financial services. It operates through Title Insurance and Services, and Home Warranty segments. The Title Insurance and Services segment issues title insurance policies on residential and commercial property, as well as offers related products and services internationally. This segment also provides closing and/or escrow services; products, services, and solutions to mitigate risk or otherwise facilitate real estate transactions; and appraisals and other valuation-related products and services, lien release and document custodial services, warehouse lending services, default-related products and services, document generation services, mortgage loans subservicing, and related products and services, as well as banking, trust, and wealth management services. In addition, it accommodates tax-deferred exchanges of real estate; and maintains, manages, and provides access to title plant data and records. This segment offers its products through a network of direct operations and agents in various states and in the District of Columbia, as well as in Canada, the United Kingdom, Australia, New Zealand, South Korea, and internationally. The Home Warranty segment provides home warranty products, including residential service contracts that cover residential systems, such as heating and air conditioning systems, and various appliances against failures that occur as the result of normal usage during the coverage period. This segment operates in various states and the District of Columbia. The company was founded in 1889 and is headquartered in Santa Ana, California.

First American Financial Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: First American’s commercial segment delivered a 33% year-over-year revenue increase and set an all-time record for fee per file in its National Commercial Services division, driven by broad-based strength in Industrial and multifamily transactions.
• Neutral Sentiment: The residential title business saw purchase revenue decline 3% amid affordability headwinds while refinance revenue rose 54% but still represents just 5% of direct revenue, with July open purchase orders down 8% and refinance orders up 29%.
• Positive Sentiment: The home warranty unit posted a 35% pretax income gain thanks to a lower loss rate and reduced claim frequency, bolstered by growth in its direct-to-consumer channel.
• Positive Sentiment: Capital returns accelerated with the board approving a $300 million share repurchase authorization, and $61 million in buybacks completed in Q2 plus $32 million in July.
• Positive Sentiment: Investments in digital platforms and AI continue, with the Endpoint rollout piloting in December and Sequoia’s instant-decisioning for refinance launching in September, positioning the company for long-term efficiency gains.

Presentation

[Operator]

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. A copy of today's press release is available on First American's website at www.firstam.com/investor. Please note that the call is being recorded and will be available for replay from the company's investor website and for a short time by dialing (877) 660-6853 or (201) 612-7415 and enter the conference ID of 13754701.

[Operator]

We will now turn the call over to Craig Barbario, Vice President, Investor Relations, to make an introductory statement.

[Craig Barberio, VP - IR at First American Financial]

Good morning, everyone, and welcome to First American's earnings conference call for the second quarter of twenty twenty five. Joining us today on the call will be our Chief Executive Officer, Mark Seaton and Matt Wassner, Chief Financial Officer. Some of the statements made today may contain forward looking statements that do not relate strictly to historical or current fact. 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. Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward looking statements.

[Craig Barberio, VP - IR at First American Financial]

For more information on these risks and uncertainties, please refer to yesterday's earnings release and the risk factors discussed in our Form 10 ks and subsequent SEC filings. 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 directly comparable GAAP financials, please refer to yesterday's earnings release, which is available on our website at www.firstam.com. I will now turn the call over to Mark Seaton.

[Mark Seaton, CEO & Director at First American Financial]

Thank you, Craig, and thank you to everyone joining our call. Today, I will provide a brief review of our earnings, discuss our market outlook and conclude with some thoughts on capital management. Today, we announced our second quarter adjusted earnings per share of $1.53 This result includes the impact of $0.12 per share related to executive separation costs. Our earnings were strong despite continued challenges in The U. S.

[Mark Seaton, CEO & Director at First American Financial]

Housing market. Our performance this quarter was highlighted by continued strength in our commercial business. Commercial revenue was up 33% and we set an all time record in our National Commercial Services division for fee per file in the quarter. We are seeing broad based strength in Commercial again this quarter led by Industrial, which includes data center transactions and multifamily. We're also seeing a continued shift toward refinance in Commercial.

[Mark Seaton, CEO & Director at First American Financial]

Historically, our revenue was roughly 30% refinance, but this quarter it was 46%. The sales, underwriting, closing and operations teams that 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. Our commercial business also drives much of our escrow deposits, which help drive investment income. Investment income grew 17% this quarter.

[Mark Seaton, CEO & Director at First American Financial]

Investment income in our bank in particular continues to be a countercyclical earnings driver, while the residential market is at the trough. 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. It's been a tough purchase market for the last three years due primarily to home affordability issues and elevated mortgage rates. But as purchase volumes return 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 Seaton, CEO & Director at First American Financial]

Refinance revenue was up 54% this quarter, but it's growing off a low base and represents just 5% of our direct revenue. The 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 three weeks in July, our open purchase orders are down 8%, while our refinance orders are up 29%. Commercial orders are up 13% so far this month, setting us up well for a strong back half of the year. Our home warranty business posted very strong results.

[Mark Seaton, CEO & Director at First American Financial]

Our pretax income was up 35% driven by a lower loss rate and we continue to drive revenue growth through our direct to consumer channel. This quarter we ramped up our share repurchases and in July our Board of Directors approved a new $300,000,000 share repurchase authorization. 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 a more detailed review of our financial results.

[Matthew Wajner, CFO at First American Financial]

Thank you, Mark. This quarter we generated GAAP earnings of $1.41 per diluted share. Our adjusted earnings, which exclude the impact of net investment losses and purchase related intangible amortization was $1.53 per diluted share. Both our GAAP and adjusted earnings include a $13,000,000 or $0.12 per diluted share one time expense related to executive separation costs, which was recorded in the corporate segment. Revenue in our title segment was $1,700,000,000 up 13% compared with the same quarter of 2024.

[Matthew Wajner, CFO at First American Financial]

Commercial revenue was $234,000,000 a 33% increase over last year. Our closed orders increased 2% from the prior year and our average revenue per order was up 30% due to continued broad based strength across both asset class and transaction size. 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. 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. 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 6.57%.

[Matthew Wajner, CFO at First American Financial]

In the agency business, revenue was $717,000,000 up 16% from last year. Given the reporting lag in agent revenues of approximately one quarter, these results primarily reflect remittances related to first quarter economic activity. Information and other revenues were $264,000,000 during the quarter, up 10% compared with last year, primarily due to our Canadian operations continuing to see higher refinance activity. Investment income was $147,000,000 in the second quarter, up $21,000,000 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 twenty twenty four. The provision for policy losses and other claims was $39,000,000 in the second quarter or 3% of title premiums and escrow fees, unchanged from the prior year.

[Matthew Wajner, CFO at First American Financial]

The second quarter rate reflects an ultimate loss rate of 3.75% for the current policy year and a net decrease of $10,000,000 in the loss reserve estimate for prior policy years. Pretax margin in the title segment was 12.6% or 13.2% on an adjusted basis. Turning to the home warranty segment, total revenue was $110,000,000 this quarter, up 3% compared with last year. The loss ratio was 41%, down from 46% in the second quarter of twenty twenty four. The improvement in the loss ratio was driven by lower claim frequency, which was partially offset by higher claim severity.

[Matthew Wajner, CFO at First American Financial]

Pretax margin in the home warranty segment was 20.2% or 20.7% on an adjusted basis. The effective tax rate in the quarter was 24.6%, which is slightly above the company's normalized tax rate of 24%. Our debt to capital ratio was 32.1%. Excluding secured financings payable, our debt to capital ratio was 23.1%. In the second quarter, we repurchased 1,000,000 shares for a total of $61,000,000 at an average price of $57.95 So far in July, we repurchased 577,000 shares for $32,000,000 at an average price of $56.19 Now I would like to turn the call back over to the operator to take your questions.

[Operator]

Thank you. We will now be conducting a question and answer session. Our first question comes from the line of Mark DeVries with Deutsche Bank. Please proceed with your question.

[Mark Devries, Director at Deutsche Bank]

Yeah. Thank you. Could you describe the source of strength in the commercial ARPO that you're seeing? And how the transactions that drove you to that outcome compared to what's in your pipeline today?

[Mark Seaton, CEO & Director at First American Financial]

Yes. Sure. Sure thing, Mark. Thanks for the question. The interesting thing is commercial, we definitely look at the order counts and order counts are up and it's setting us up for good back half of the year.

[Mark Seaton, CEO & Director at First American Financial]

But what matters a lot more is the fee per file. And when you look at 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 Commercial is up 30%.

[Mark Seaton, CEO & Director at First American Financial]

So to your point, I mean, we're getting a lot more high quality and just higher liability transactions. And it's coming from a broad array of asset classes. Our biggest asset class this quarter was Industrial. Our second biggest was Multifamily. We're seeing a lot of data center deals.

[Mark Seaton, CEO & Director at First American Financial]

We closed 11 transactions with a premium over $1,000,000 So we're getting a lot of big deals. But commercial is also driven by just the smaller commercial deals and we're seeing a lot of those come through too. So I would just say it's hard to pinpoint one 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 second half of the year.

[Mark Seaton, CEO & Director at First American Financial]

And one thing that's going to help us too is, this one big beautiful bill, I mean, there were certain 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 deals that close in Q4 to take advantage of those credits. So I think we're pretty positive about the outlook now. One thing too is the comps are going to get tougher here because we had a really strong back half last year, really strong Q4. But we feel really good about the outlook for Commercial for the rest of this year.

[Mark Devries, Director at Deutsche Bank]

Okay, great. And you also referred to an increase in the percentage of commercial that's coming from refi. What's causing that? Is this somewhat of a secular change? Or is there just some kind of cyclical component to this?

[Mark Seaton, CEO & Director at First American Financial]

It's a cyclical component. I mean, there's been a lot of there was a lot of refinance business back in 2020, 2021, a lot of deals that were happening. And there was talk of this refi wall in commercial where there was going to be this eighteen to twenty month twenty four month period where there's just a lot of refinance deals were lot we're happen going in commercial. And we're seeing that. We're right in the middle of that.

[Mark Seaton, CEO & Director at First American Financial]

So when you look at the long term trend in commercial, mean you don't have these thirty year mortgages. You've got five, mortgages, sometimes ten year mortgages. So it's a little bit lumpier and we're overweight refi now. But eventually that will get back to the normalized trend line of 30%.

[Mark Devries, Director at Deutsche Bank]

Okay. And that's helpful. Just you mentioned you think you're we're kind of in the middle of that wall. How much longer do you think it kind of extends before it becomes a bit of a headwind?

[Mark Seaton, CEO & Director at First American Financial]

Probably another year. It's hard to tell, but we're it's been sort of ramping up over the last year and we think we probably got another year to go. It won't last forever, but we're definitely in the middle of it.

[Operator]

Our next question comes from the line of Maxwell Fritzsche with Truist Securities.

[Maxwell Fritscher, Equity Research Associate at Truist Securities]

One for Mark Hughes. You had pointed to the higher refinance activity in Canada. What is your judgment on the durability there? And maybe could you size the contribution from that this quarter?

[Matthew Wajner, CFO at First American Financial]

Yes. Thanks for the question. This is Matt. We expect the refi business in Canada to be strong for the remainder of the year. So, you know, the growth that we've seen in info and other is largely driven by Canada and the refi business they're seeing.

[Matthew Wajner, CFO at First American Financial]

And the growth that we saw this quarter is a good proxy for the growth that we expect expect to see for the full year.

[Maxwell Fritscher, Equity Research Associate at Truist Securities]

Thank you. And then moving to home warranty. How do you see the competitive environment there? And then what are your observations around the loss environment? You had called out lower frequency. Was that driven by weather or any other underlying factors you're seeing?

[Mark Seaton, CEO & Director at First American Financial]

Well, there's a lot of competitors in home warranty, but we got a great team and we continue to grow our business even despite the fact that the real estate markets are challenged. I would say with home warranty, they had a really good result this quarter. A lot of things went right. Frequency of claims was down. It's down for a couple of reasons.

[Mark Seaton, CEO & Director at First American Financial]

One, we did have favorable weather conditions, so that always helps. And the second thing I would say is we have fewer contracts in force now than we did a year ago just because of we've got two channels, the real estate channel and direct to consumer channel. The real estate channel is down just like everything else, but the direct to consumer channel is growing, but we have fewer contracts, you have fewer contracts, have fewer claims. So frequency is down. And because frequency is down, we can push our claims to our higher quality contractors.

[Mark Seaton, CEO & Director at First American Financial]

And so we've able to kind of hold the line with severity and frequency is down. And as a result, we have a lower claims ratio. I'd say the other thing that happened is of all the businesses that we have, home warranty is the one we were a little bit worried about inflation pressures because we're buying HVAC equipment and different things and those were going to be subject to inflation. 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.

[Mark Seaton, CEO & Director at First American Financial]

So we're sort of getting the benefit of the price increases 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 kind of come here in the back half of the year. But those are a combination of things that kind of led to really strong loss ratios this quarter.

[Maxwell Fritscher, Equity Research Associate at Truist Securities]

Understood. Thank you for taking my questions.

[Mark Seaton, CEO & Director at First American Financial]

Thanks, Maxwell.

[Operator]

Thank you. Our next question comes from the line of Terry Ma with Barclays. Please proceed with your question.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Hey, thank you. Good morning. Wanted to start off on the margin. It obviously came in pretty strong this quarter. I think it was up about 140 basis points year over year. 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?

[Matthew Wajner, CFO at First American Financial]

Terry, this is Matt. Thanks for the question. Yes, like as you noted, we had a we put in 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, year to date. And as Mark mentioned earlier, really the back half, the comparisons are gonna get to be a lot more, challenging.

[Matthew Wajner, CFO at First American Financial]

So we feel like we're going we believe we're going to finish the full year out with, you know, improved margins compared to last year. But I think that gap that you just mentioned is gonna start to narrow in the second half of the year.

[Terry Ma, Senior Equity Research Analyst at Barclays]

Got it. That's helpful. Do you have any updates on the technology investments Sequoia and Endpoint, in a sense of kind of like rollouts and success rates? Thank you.

[Mark Seaton, CEO & Director at First American Financial]

Yeah. Thanks, Jerry. We're still making really good progress on both fronts on both endpoint and Sequoia. I would just say that we've got great teams. We're really making progress on developing the products.

[Mark Seaton, CEO & Director at First American Financial]

I think in terms of endpoint, we're working on implementing the technology throughout our entire branch network. And we're in the very early stages of that. We're going to start piloting the new technology in an office in December and we're going to start putting it in the hands of our direct operations at some point in the first quarter and we'll see how it goes. So the technology, it's working. We think it's going to really improve things on a lot of different fronts.

[Mark Seaton, CEO & Director at First American Financial]

We'll talk more about this when we actually have some data to show. But the national rollout is going to start in Q1 and we'll kind of take it from there. I think on the Sequoia side, we're making we're still making really good progress. We're three markets right now. We've piloted it.

[Mark Seaton, CEO & Director at First American Financial]

And it's tough to have instant decisioning for purchase. 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 one point. So with Sequoia, we're still building out our capabilities to provide instant decisioning for purchase transactions.

[Mark Seaton, CEO & Director at First American Financial]

So we're building out the capabilities. We're laying the groundwork to roll it out through all of California. So we're making those plans now. And the one thing about if you can automate the purchase transaction, you can automate the refinance transaction. So with Sequoia, we're also kind of rolling out our refinance automation in September.

[Mark Seaton, CEO & Director at First American Financial]

So we're making really good progress on both fronts. They're both long term. They're not going to we're not going to our margin is not going to jump dramatically next quarter or the quarter after that. But we look out two or three years, we feel like these are going to be differentiated solutions relative to the industry. We're really excited about it.

[Mark Seaton, CEO & Director at First American Financial]

So we'll talk more about it when we have some more tangible progress after we actually demonstrate what we've done. Not really in a lab or in a pilot, but more of in broader company. Thanks for the question, Terry.

[Operator]

Thank you. Our next question comes from the line of Bose George with KBW. Please proceed with your question.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Sorry guys, I'm on mute. Sorry. Good afternoon. So just following up on the question on margins, it makes sense that the gap will narrow in the back half of the year. But just looking at your 13.2% margin you did this quarter, is there any reason the margin in the third quarter should be lower than that?

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

I mean, yes, this looks like the trends are similar. So could we expect a similar number in the third quarter?

[Mark Seaton, CEO & Director at First American Financial]

Well, I think a big part of that is it's really going to depend on the strength of the commercial business, right? Again, 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 because I think when you look at the typical seasonal trend, Q3 might be on par with Q2.

[Mark Seaton, CEO & Director at First American Financial]

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 approach that, but that's not our expectation right now. So it really just it's just going to depend on commercial, I think, going to be the biggest driver. And that's a little bit unknown right now. It's going be strong. We're just not sure how strong.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Yes. Okay. No, great. That's helpful. Thanks.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

And then just switching to the regulatory front. Can you just give us any update on the FHFA title pilot? Have you interacted with Bill Pulte? Just any color there?

[Mark Seaton, CEO & Director at First American Financial]

Yes. Thanks, Bose. The pilot is underway with Fannie. It's very limited in scope and duration. It's only for refinance transaction and it's only for a subset of refinance transactions.

[Mark Seaton, CEO & Director at First American Financial]

It's low LTVs in certain states. The property has to be free and clear of any prior liens and encumbrances. So we're really talking about the lowest risk of all refinance transactions. And we're monitoring the pilot and we're going to see how things go. We have been in touch with Director Pulte.

[Mark Seaton, CEO & Director at First American Financial]

We've been in touch with his office and we were in communication with Fannie and Freddie too. So we responded to the RFP not with a title waiver solution. We responded with a title insurance solution and that's not the direction they wanted to go at the time. And so we're definitely monitoring the situation. We'll see how things develop.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay, great. And then just in terms of the way so just with the pilot, I guess it's supposed to go to 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 decides at some point in late twenty twenty six how to proceed from here?

[Mark Seaton, CEO & Director at First American Financial]

Yeah.

[Mark Seaton, CEO & Director at First American Financial]

So it goes the rest of this year and through 2026 and it's a pilot and so they'll evaluate the results and whether it was successful or not and make a determination at some point after that.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay.

[Mark Seaton, CEO & Director at First American Financial]

Then I would just say too, mean, we're 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 the the market decided to go, I mean, we've got very unique assets with our just with our data, our title plans, we've got higher coverage than anybody else. And we have our distribution network because this is a title waiver pilot, but you still have to close the transaction. And given our distribution network and our underwriting expertise, I mean, I think we've got real advantages if this is the way the market decides to go.

[Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)]

Okay. Makes sense. Thanks.

[Mark Seaton, CEO & Director at First American Financial]

Okay. Thanks a lot, Bose.

[Operator]

Thank you. And there are no additional questions at this time. That concludes this morning's

Participants

Executives

• Craig Barberio, VP - IR
• Mark Seaton, CEO & Director
• Matthew Wajner, CFO

Analysts

• Mark Devries, Director at Deutsche Bank
• Maxwell Fritscher, Equity Research Associate at Truist Securities
• Terry Ma, Senior Equity Research Analyst at Barclays
• Bose George, Managing Director at Keefe, Bruyette & Woods (KBW)