Title company 2Q earnings are a mixed bag
August 15, 2022 6:17 PM
Title company earnings shrunk year-over-year across the board in the second quarter, reflecting a tough environment in the mortgage industry.
"The title and real estate settlement industry is evolving and experiencing growing levels of competition from both new entrants and existing companies," said Ryan Gilbert of BTIG in his report on First American's earnings. Some, like First American, are better prepared to withstand that change.
But the company that has made the biggest splash, Doma, which went public just over one year ago, has had to scale back its ambitions. Its publicly traded competitors have remained profitable, even with the slowdown in the mortgage market. Meanwhile, Doma sunk deeper into the red.
Here is how the nation's four largest title underwriters, as well as smaller publicly traded companies Doma and Investors Title did in the second quarter.
"The title and real estate settlement industry is evolving and experiencing growing levels of competition from both new entrants and existing companies," said Ryan Gilbert of BTIG in his report on First American's earnings. Some, like First American, are better prepared to withstand that change.
But the company that has made the biggest splash, Doma, which
Here is how the nation's four largest title underwriters, as well as smaller publicly traded companies Doma and Investors Title did in the second quarter.
Doma cited by NYSE for stock price issues
Doma Holdings, the newest of the publicly traded title underwriters, lost $58.7 million in the second quarter, compared with losses of $50 million in the first quarter and $23.3 million in the second quarter of 2021.
Open orders fell to 25,231 from 35,192 for the previous three months and 41,491 one year prior. Over the same time frame, closed orders were 18,799 from 27,347 and 31,436. This missed estimates by 32% for open orders and 39% for closed orders, Gilbert's report on Doma said.
"The title and real estate settlement industry is rapidly evolving and we believe there is room for a digital-first company Doma rapidly and take share from technological laggards," Gilbert said. "However, we do not believe the core product — instant title commitments on centralized refinance loans — is meaningfully differentiated from what is currently on offer from the public incumbent title insurers."
While Doma has redirected to a path that generates more purchase business, market share growth is more difficult, Gilbert added.
"Because of the high degree of volatility in the mortgage market, most of which is being driven by macroeconomic factors outside of Doma's control, we are being strategically selective with our investments and are prudently managing our expenses, including prioritizing profitability and preserving cash over growth," said Mike Smith, chief financial officer, said in a press release. "We believe that we have taken meaningful actions to guard against the uncertainty in the mortgage market in the back half of this year and to protect our bottom-line results."
On Aug. 4, Doma revealed it received a notice from the New York Stock Exchange that it was out of compliance with rules requiring its common stock not trade below $1 per share for 30 consecutive trading days.
If it otherwise does not regain compliance, Doma's management is proposing executing a reverse stock split if shareholders approve at its next annual meeting.
In the past 52 weeks, Doma's stock hit a high of $9.10 per share but more recently fell to a low of 69 cents per share. The price did break back above $1 per share on Aug. 12 and Aug. 15, but to regain compliance with NYSE rules, it has to be above $1 for at least
Open orders fell to 25,231 from 35,192 for the previous three months and 41,491 one year prior. Over the same time frame, closed orders were 18,799 from 27,347 and 31,436. This missed estimates by 32% for open orders and 39% for closed orders, Gilbert's report on Doma said.
"The title and real estate settlement industry is rapidly evolving and we believe there is room for a digital-first company Doma rapidly and take share from technological laggards," Gilbert said. "However, we do not believe the core product — instant title commitments on centralized refinance loans — is meaningfully differentiated from what is currently on offer from the public incumbent title insurers."
While Doma has redirected to a path that generates more purchase business, market share growth is more difficult, Gilbert added.
"Because of the high degree of volatility in the mortgage market, most of which is being driven by macroeconomic factors outside of Doma's control, we are being strategically selective with our investments and are prudently managing our expenses, including prioritizing profitability and preserving cash over growth," said Mike Smith, chief financial officer, said in a press release. "We believe that we have taken meaningful actions to guard against the uncertainty in the mortgage market in the back half of this year and to protect our bottom-line results."
On Aug. 4, Doma revealed it received a notice from the New York Stock Exchange that it was out of compliance with rules requiring its common stock not trade below $1 per share for 30 consecutive trading days.
If it otherwise does not regain compliance, Doma's management is proposing executing a reverse stock split if shareholders approve at its next annual meeting.
In the past 52 weeks, Doma's stock hit a high of $9.10 per share but more recently fell to a low of 69 cents per share. The price did break back above $1 per share on Aug. 12 and Aug. 15, but to regain compliance with NYSE rules, it has to be above $1 for at least
Fidelity's title revenue rises along with fees
Fidelity National Financial reported net earnings of $382 million in the second quarter, down from $397 million in the first quarter and $552 million for the second quarter of 2021.
Total title revenue of $2.6 billion, actually increased from $2.4 billion in the first quarter although it was down year-over-year from $3.0 billion.
"As we continue to navigate the market volatility due to rising interest rates and the ongoing economic uncertainty, we are proud of our second quarter results," said William Foley, chairman, referring specifically to the revenue number.
At the end of the quarter, open orders totaled 443,000, compared with 522,000 in the first quarter and 695,000 in the second quarter of 2021. The higher revenue partly is a result of residential fee per file growing to $2,695 from $2,188 and $2,030 respectively.
The company's headcount is down to 12,700 from 13,400 as of March 31.
"Though the economic outlook and near-term market trends are uncertain, we will continue to manage the business the way we have through prior cycles, effectively managing margin by adjusting expenses to align with trends in opened and closed order volumes," said Mike Nolan, Fidelity National's chief executive. "We will also be opportunistic and use market dislocation to continue expanding our business through attractive acquisitions and recruiting of established and experienced producers."
The partial spin-off of the F&G business is on track to take place in the fourth quarter, the company said.
Total title revenue of $2.6 billion, actually increased from $2.4 billion in the first quarter although it was down year-over-year from $3.0 billion.
"As we continue to navigate the market volatility due to rising interest rates and the ongoing economic uncertainty, we are proud of our second quarter results," said William Foley, chairman, referring specifically to the revenue number.
At the end of the quarter, open orders totaled 443,000, compared with 522,000 in the first quarter and 695,000 in the second quarter of 2021. The higher revenue partly is a result of residential fee per file growing to $2,695 from $2,188 and $2,030 respectively.
The company's headcount is down to 12,700 from 13,400 as of March 31.
"Though the economic outlook and near-term market trends are uncertain, we will continue to manage the business the way we have through prior cycles, effectively managing margin by adjusting expenses to align with trends in opened and closed order volumes," said Mike Nolan, Fidelity National's chief executive. "We will also be opportunistic and use market dislocation to continue expanding our business through attractive acquisitions and recruiting of established and experienced producers."
The partial spin-off of the F&G business is on track to take place in the fourth quarter, the company said.
First American's profits increase quarter-over-quarter
First American Financial's net income of $109 million was actually higher than the $98 million in the first quarter , but down from $302 million in the second quarter of 2021.
"Our second quarter business results were strong, with our title segment delivering a pretax margin of 13.9%, excluding net investment losses," said Ken DeGiorgio, First American's CEO, in a press release. "Total revenue, excluding net investment losses, was up 1%, as continued strength in the commercial business, growth in investment income and revenue from recent acquisitions offset the decline in residential refinance and purchase activity."
However, First American's subservicing business ServiceMac, as well as the Endpoint title and escrow business and a purchase instant title decision initiative, were responsible for a combined $28 million in losses during the second quarter. But those headwinds should subside by year-end, a report from Bose George of Keefe, Bruyette & Woods said. "Collectively, we estimate these three items will amount to 100-to-150 basis points of drag on the title margin in 2022," he said.
First American's strategic focus on enhancing its core title business will lead to more durable revenue and pre-tax margin as well as defend market share as the industry becomes more competitive, Gilbert said in his report
"First American has a smaller footprint in refinance, particularly the high-margin centralized refinance subsegment, than Fidelity National and is not relying on share gains in this segment for growth like Doma," Gilbert said. "We believe lower exposure is a relative plus in the near term as refinance volume declines and competition from new entrants heats up."
It ended the second quarter with 257,200 open orders and 205,000 closed orders, compared with 279,000 and 205,100 in the first quarter and 329,500 and 271,100 one year ago.
"Our second quarter business results were strong, with our title segment delivering a pretax margin of 13.9%, excluding net investment losses," said Ken DeGiorgio, First American's CEO, in a press release. "Total revenue, excluding net investment losses, was up 1%, as continued strength in the commercial business, growth in investment income and revenue from recent acquisitions offset the decline in residential refinance and purchase activity."
However, First American's subservicing business ServiceMac, as well as the Endpoint title and escrow business and a purchase instant title decision initiative, were responsible for a combined $28 million in losses during the second quarter. But those headwinds should subside by year-end, a report from Bose George of Keefe, Bruyette & Woods said. "Collectively, we estimate these three items will amount to 100-to-150 basis points of drag on the title margin in 2022," he said.
First American's strategic focus on enhancing its core title business will lead to more durable revenue and pre-tax margin as well as defend market share as the industry becomes more competitive, Gilbert said in his report
"First American has a smaller footprint in refinance, particularly the high-margin centralized refinance subsegment, than Fidelity National and is not relying on share gains in this segment for growth like Doma," Gilbert said. "We believe lower exposure is a relative plus in the near term as refinance volume declines and competition from new entrants heats up."
It ended the second quarter with 257,200 open orders and 205,000 closed orders, compared with 279,000 and 205,100 in the first quarter and 329,500 and 271,100 one year ago.
Title income also rises at Old Republic
Old Republic International's title insurance business posted pretax operating income of $109.5 million in the second quarter. This was higher than the $80.9 million posted in the first quarter but down from $138.9 million in the second quarter of 2021.
Direct orders opened totaled 117,234 for the most recent period, compared with 126,976 for the first quarter and 154,508 one year earlier. For the same time frame, closed orders were 102,585, versus 106,801 and 138,826, respectively.
The run-off private mortgage insurance business reported pretax operating income of $12.2 million in the second quarter, compared with $9.7 million in the first quarter and $7.5 million in the second quarter of 2021.
As these policies exited the book of business, net premiums earned declined 29.1% year-over-year, to $6 million from $8.5 million for the period ended June 30, 2021.
Direct orders opened totaled 117,234 for the most recent period, compared with 126,976 for the first quarter and 154,508 one year earlier. For the same time frame, closed orders were 102,585, versus 106,801 and 138,826, respectively.
The run-off private mortgage insurance business reported pretax operating income of $12.2 million in the second quarter, compared with $9.7 million in the first quarter and $7.5 million in the second quarter of 2021.
As these policies exited the book of business, net premiums earned declined 29.1% year-over-year, to $6 million from $8.5 million for the period ended June 30, 2021.
Stewart's results are 'better than feared'
For the second consecutive period, Stewart Information Services reported higher net income on a quarter-to-quarter basis. In the second quarter it made $61.7 million, up from $57.9 million. However, it was still lower than the comparable period in 2021, when its net income was $94.8 million.
"Our second quarter results reflect the continuation of a transitioning market which began in the first quarter," said CEO Fred Eppinger in a press release. "Notwithstanding these market conditions, our results reflect the fundamental changes we have made to our operating approach and competitive position as we maintained strong operating margins."
Even as closed orders dropped 28% year-over-year, those "were better than expected and potentially led to some share gain," BTIG's Gilbert said.
It reported 84,882 closed orders in the second quarter, down from 87,855 in the first quarter and 117,473 one year prior.
Open orders totaled 103,646, a drop from 116,755 on a quarter-to-quarter basis and 143,629 a year ago.
"Overall, we characterize second quarter results as 'better than feared' and more evidence to support our view that Stewart's 2020-2021 margin improvement initiatives will prove relatively durable," Gilbert said. "We do expect margin to continue to decline on a year-over-year basis in the second half of 2022 as revenue growth turns negative but believe Stewart's low-double-digit margin target remains achievable."
"Our second quarter results reflect the continuation of a transitioning market which began in the first quarter," said CEO Fred Eppinger in a press release. "Notwithstanding these market conditions, our results reflect the fundamental changes we have made to our operating approach and competitive position as we maintained strong operating margins."
Even as closed orders dropped 28% year-over-year, those "were better than expected and potentially led to some share gain," BTIG's Gilbert said.
It reported 84,882 closed orders in the second quarter, down from 87,855 in the first quarter and 117,473 one year prior.
Open orders totaled 103,646, a drop from 116,755 on a quarter-to-quarter basis and 143,629 a year ago.
"Overall, we characterize second quarter results as 'better than feared' and more evidence to support our view that Stewart's 2020-2021 margin improvement initiatives will prove relatively durable," Gilbert said. "We do expect margin to continue to decline on a year-over-year basis in the second half of 2022 as revenue growth turns negative but believe Stewart's low-double-digit margin target remains achievable."
Investors has its best second quarter for net premiums
The smallest of the publicly traded title underwriters, Investors Title reported net income of $2.3 million, compared with $6.2 million in the first quarter and $19.8 million for the prior year period.
But net premiums written increased 3.1% year-over-year to $69.6 million, driven by higher average home values and growth of Investors' footprint in Texas. That is a second quarter record for the company.
"Although net income is down for the quarter, much of the negative comparison is attributable to market losses in our equity portfolio and the gain on the sale of property in the prior year quarter," said J. Allen Fine, Investors' chairman. "The impact of higher mortgage rates has been varied as we have seen some slowing of activity in some markets but ongoing strength in others."
But net premiums written increased 3.1% year-over-year to $69.6 million, driven by higher average home values and growth of Investors' footprint in Texas. That is a second quarter record for the company.
"Although net income is down for the quarter, much of the negative comparison is attributable to market losses in our equity portfolio and the gain on the sale of property in the prior year quarter," said J. Allen Fine, Investors' chairman. "The impact of higher mortgage rates has been varied as we have seen some slowing of activity in some markets but ongoing strength in others."
