Title earnings marred by slow market, cybersecurity incidents

Despite slower housing market conditions, Big Four title firms Stewart, First American and Fidelity National Financial all managed to earn profits in 2023.

Stewart, which reported its earnings earlier in February, posted a revenue of $2.26 billion in 2023 and a net income of $30.4 million. Both figures were down significantly from 2022 when it recorded $3.07 billion in revenue and net income of $162.3 million.

In fourth-quarter 2023, Stewart earned revenue of $582.2 million and net income of $8.8 million, which was down from the $13.3 million in net income it earned a year ago. Despite declines in title transaction volume, Stewart’s title segment still reported an operating revenue of $503 million for Q4, down 14% annually, and a pretax income of $27.3 million, down 2% annually.

On a call with investors and analysts, Stewart CEO Fred Eppinger noted that the company’s focus in 2023 was on creating a more resilient firm that would be able to succeed in all phases of the real estate market cycle.

“As we close 2023, we are operating in an environment that saw mortgage interest rates reach a high of 8% during the fourth quarter before falling to around mid-6% near the end of the year,” Eppinger said.

“Mortgage rates and rate volatility continue to impact transaction volumes, and we find ourselves at historic lows for sale of existing homes. As I have said before, we see 2024 as a transition year toward a more normal market for existing home sales during 2025 and believe the next six months will likely be very challenging given the macroeconomics laid on top of a typical seasonal impact.”

To achieve its goal, Eppinger noted that Stewart is focusing on improving its technology and efficiency.

“These strategic investments are resulting in cost ratios that are somewhat elevated given we are in a market with historically low transaction volumes,” Eppinger said. “However, we are setting Stewart up for better overall performance in the future. We believe that these long-term investments coupled with thoughtful near-term expense management will improve our structure and financial performance in the long term.”

Executives at First American also lamented the challenging housing market conditions posed in 2023.

“While difficult market conditions will likely persist this year, we do expect to benefit from modest growth in both our residential and commercial businesses, but this could change depending on the path of mortgage rates,” First American CEO Ken DeGiorgio told investors and analysts on the firm’s Q4 2023 earnings call earlier this month.

“We continue to run our business efficiently and maintain a strong balance sheet, which allows us to invest in strategic initiatives that support long-term growth, while returning capital to shareholders.”

In 2023, First American recorded total revenue of $6.004 billion, down from $7.605 billion in 2022. Its net income last year was $216.8 million, down from $263 million a year prior. This decrease came as the number of title orders opened during the year fell from 895,500 in 2022 to 629,100 in 2023.

Additionally, First American’s title revenue fell by roughly $1.8 billion from 2022, finishing last year at $5.725 billion, as the title segment’s net income dropped from $757.4 million to $494 million during the year.

In Q4 2023, First American reported a 15% year-over-year decrease in revenue to $1.429 billion, along with a $20 million decline in net income to $34.1 million. Title revenue for the quarter also fell to $1.321 billion, as the number of title orders opened dropped from 153,100 in Q4 2022 to 124,600 in Q4 2023.

DeGiorgio noted during the call that the firm’s financial results were materially impacted by the December cybersecurity incident that resulted in First American’s systems going offline for a few days.

“We were performing well in a challenging market ahead of the cybersecurity incident that occurred in late December,” DeGiorgio said. “We elected to take systems offline, which materially impacted the company’s operations and, consequently, our fourth-quarter financial results. Our title orders and related product demand appear to have returned to normal levels, however. We expect no significant ongoing impact from the incident.”

He also noted that the firm was grateful for the support and patience of agents, customers and other industry participants during the cybersecurity incident.

Cybersecurity was also a topic of discussion on Fidelity’s Q4 2023 earnings call, as the firm suffered its own attack just weeks before First American was hit. According to CEO Mike Nolan, Fidelity’s Q4 2023 title segment results were negatively impacted by the incident.

“We estimate the incident reduced adjusted pretax title earnings by $8 million to $10 million and lowered our adjusted pretax title margin by roughly 50 basis points and 12.3%, which would have been in line with the prior year quarter to 11.8% as reported,” Nolan told investors and analysts during the firm’s Q4 2023 earnings call.

“As challenging as this event was, it really showcased how our team pulled together.”

Despite the cybersecurity incident, Fidelity’s title segment performed well in both Q4 and full year 2023, reporting revenue of $1.7 billion for the quarter and $7.038 billion for the year. The title segment reported an adjusted net income of $174 million for the fourth quarter and $760 million for the full year. Both of these figures were down from $180 million in Q4 2022 and $1.2 billion in full year 2022.

These results came even as the number of purchase orders opened during the quarter were down 1% and the number of refinance orders opened were down 11% annually.

Due to losses reported by the firm’s corporate and F&G Annuities and Life segments during the fourth quarter, Fidelity as a whole reported a net loss of $69 million during these three months, even as revenue rose from $2.557 billion in Q4 2022 to $3.432 billion in Q4 2023.

For full year 2023, the firm reported total revenue of $11.752 billion and net earnings of $517 million.

Looking ahead, Nolan is optimistic about how the firm will fare in 2024.

“As always, we will manage our business to the trend in opened orders to protect our profitability,” he said. “We feel that we are well positioned for the current market and poised to benefit from a potential turn in the housing market, should mortgage rates drop in 2024. Beyond the near-term pressures, we remain bullish on the mid- to long-term fundamentals of the real estate market.”