First American Financial Corporation (FAF) Earnings & Analysis

Latest quarter

First American reported third-quarter revenue of $2.1 billion, below the consensus by −1.06%, although both figures rounded to $2.1 billion. Adjusted earnings per share were $1.78, below the consensus estimate of $1.85.

Revenue rose from $2.0 billion a year earlier. The company attributed the increase primarily to higher agent premiums and direct title premiums and escrow fees. Its filing said domestic commercial transactions generated higher direct premiums and escrow fees, while residential purchase and refinance transactions generated less.

Diluted earnings per share fell to $1.72 from $1.84 a year earlier. First American reported an operating margin of 14.3%, compared with 15.6% a year earlier, and free cash flow of $196.2 million, down from $223.6 million.

The filing attributed higher personnel costs primarily to salaries and incentive compensation, while other operating expenses increased primarily because of production and software expenses. The title insurance and services segment’s pretax margin declined, and the home warranty segment’s pretax margin also fell.

Adjusted EPS is the figure the consensus estimates, not the GAAP EPS above.

What management said on the call

CEO Mark Seaton described different conditions across commercial and residential real estate. He said commercial refinance premium revenue increased 49.0% from the prior year, while purchase and refinance revenue declined. CFO Matt Wajner said commercial revenue rose 21.0%, helped by both higher average revenue per order and more closed orders.

Seaton attributed the decline in purchase revenue to affordability constraints and said higher mortgage rates reinforced his expectation for a prolonged period of lower residential originations. He said open purchase, refinance and commercial orders were down in the first weeks of October, although the company’s commercial pipeline supported his expectation for the end of the year.

Wajner said ServiceMac’s fee revenue grew as its loan portfolio expanded, while higher deposit balances at First American Trust contributed to investment income growth. He also said the company recorded $8.0 million in one-time expenses related to an operational restructuring and an indirect tax matter.

On technology, Seaton said First American expanded its Endpoint pilot in Washington and was automating more of the work required to close a transaction. He said the company was applying lessons from the pilot to a national rollout and expanding Sequoia, its title decisioning platform, for purchase and refinance transactions. Seaton described the company’s title plant data and underwriting as part of that strategy.

Asked about next year’s margins, Wajner said the outcome would depend on commercial activity and that he expected the margin to be roughly stable, with possible pressure. He also said prior-year loss reserve releases would likely slow or stop at some point, depending on claims.

Seaton said the company wanted to gain market share in a declining market while investing in its platforms and customer relationships. Wajner said he did not expect the recent pace of deposit growth at First American Trust to continue.

Guidance

CFO Matt Wajner said First American expects essentially flat revenue in FY2027 compared with FY2026, with modest commercial growth and lower residential revenue. He also expects investment income to grow and the title pretax margin to be roughly stable.