First American Financial Corp (NYSE: FAF) has announced a robust fourth quarter, marked by significant growth in commercial revenue and strategic financial management. The company achieved a 47% increase in commercial revenue, driven by strong performance across various asset classes. Additionally, the adjusted pre-tax title margin for the quarter stood at 11.8%, reflecting effective expense control and operational efficiencies. Investment income in the title segment reached $155 million, exceeding expectations due to a strategic portfolio rebalancing initiative. Despite challenges in the residential market, the company anticipates continued growth in 2025, with early positive signs in residential purchase and refinance orders.
The home warranty segment also performed well, posting a 4% revenue growth and an adjusted pre-tax margin of 18.2%. The company's overall earnings were solid, with GAAP earnings of $0.69 per diluted share and adjusted earnings of $1.35 per diluted share. However, the effective tax rate for the quarter was higher than usual at 27%, partly due to a valuation reserve against deferred tax assets. The company remains optimistic about its commercial business but acknowledges potential volatility in the second half of 2025 due to strong comparisons from the previous year.
Commercial Revenue Soars as Market Confidence Builds
The commercial sector witnessed a remarkable surge in activity during the fourth quarter, with revenue growing by 47%. This impressive performance was fueled by broad-based strength across multiple asset classes. Kenneth DeGiorgio, CEO, highlighted that the company closed 14 large deals exceeding $1 million in premium, compared to just 8 in the previous quarter. This uptick indicates a strong market confidence and positions First American Financial Corp for sustained growth in the coming months. Early indicators suggest a promising start to 2025, with January revenues up 24% year-over-year.
Despite these positive trends, the company is cautious about maintaining this momentum in the latter part of 2025. The strong performance in 2024 sets a high bar for comparison, which could lead to deceleration in growth rates. Moreover, certain segments like the office market, particularly suburban areas, are only beginning to show signs of recovery, indicating potential volatility. Nonetheless, the company remains committed to leveraging its strengths and navigating market uncertainties through strategic initiatives and disciplined financial management.
Title Segment Shows Resilience Amid Residential Market Challenges
In the face of challenging conditions in the residential market, the title segment demonstrated resilience with a 22% increase in revenue. The adjusted pre-tax title margin for the quarter stood at 11.8%, underscoring the company's effective cost management and scale benefits. Refinance revenue grew by 75%, albeit from a low base, while purchase revenue increased by 18%. These figures reflect the ongoing impact of low inventory, high home prices, and elevated mortgage rates on the market. Despite these headwinds, the company expects industry purchase volumes to grow by 8-9% in 2025, aligning with broader forecasts.
The home warranty segment also contributed positively, with a 4% revenue growth and an adjusted pre-tax margin of 18.2%. As the market shifts towards buyers, home warranties may become more prevalent as incentives in property sales. This trend is expected to bolster the segment's performance moving forward. Additionally, investment income benefited from escrow deposits related to commercial deals, although the exact impact varies based on factors such as Fed funds rates and deposit management. Overall, First American Financial Corp remains focused on enhancing margins through strategic portfolio rebalancing and cost controls, positioning the company for long-term success.