Good Afternoon —
Happy Valentine's Day and happy earnings season!
The results are in and just like Old Republic the week prior, Stewart and First American Financial announced very strong fourth quarters and full year reports.
During Q4, Stewart recorded net income of $85.5 million, compared to $59.7 million during the fourth quarter of 2020. For all of 2021, the company saw net income of $323.2 million compared to $154.9 million a year prior. In the title sector, pretax income increased 25% year over year. Total direct title revenue grew 24% from a year prior to $423.1 million.
First American's total revenue for 2021 was up 30% from 2020 to a record $9.2 billion, with $2.4 billion earned during the fourth quarter. However, the firm's net income dropped to $260 million during Q4 compared to $280 million a year ago, which can be attributed to an uptick in operating costs, primarily those associated with personnel, which rose 19% year-over-year.
The two hottest topics on both earnings calls were the transition from a refinance market to a purchase market and the increase in volume of commercial transactions, which brought in $93.1 million in revenue for Stewart and $377 million in revenue for First American during the fourth quarter
While Stewart acknowledged the market shift, company executives did not seem too concerned about it.
"The long term outlook for the residential real estate market remains encouraging as purchasing and trends are projected to continue to be strong and demographic realities such as first-time Millennial home buying add to the opportunity of an increasing favorable mixture," Stewart CEO Fred Eppinger said during the call. "As Stewart is preparing for this market transition, a title company that is better able to stay in the ups and downs of our real estate cycle, the key part of building the resilient foundation is the work we continue to do to gain adequate local scale and priority markets."
First American also did not appear bothered about the drop in refinance transactions, revenue from which dropped 46% during the fourth quarter at First American.
"In January 2021, we opened 2,000 purchase orders per day, a 9% increase relative to January of 2020," First American's newly appointed CEO Ken DeGiorgio said during the call. "Our refinance orders were 1200 per day steady with what we experienced in December. Mortgage rates are still relatively low and we've got some demographic benefits, millennials, for example, coming into the market. But of course, there is low inventory, but I think we remain hopeful and expect to see some inventory coming on to the market which is good for our purchase business. Refinances have a strong correlation with rates. So, we expect it to wane as rates go up, but we are in a great position to offset that with investment income."
First American is also banking on its strong investment income, which came in at $49 million during Q4, to help it ride out any unexpected shifts in the refinance transaction market.
As I mentioned last week, I was very interested to see how Stewart's fourth quarter acquisition spree impacted their earnings. During the call Stewart executives reported that consolidated employee costs rose 20% year-over-year during Q4, due to increased salaries and employee benefits, thanks to a 22% higher average employee count driven by acquisitions, and higher incentive compensation on improved overall operating results. However, it is interesting to note that employee costs, as a percentage of total operating revenues, decreased from 25.3% in Q4 of 2020 to 23.3% in Q4 2021.
Earnings calls are not done yet, however, this week Doma will be announcing its earnings on Thursday and Fidelity has its earnings call scheduled for the following week.
Until next week,
Brooklee Han
Real Estate and Title Industry Reporter
bhan@housingwire.com
EmoticonEmoticon