FAF - Earnings call transcript Q1 2018 | First American Financial Corporation

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Operator

Greetings and welcome to First American Financial Corporation First Quarter 2018 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] A copy of today’s press release is available on First American’s website at www.firstam.com/investor. Please note that the call is being recorded and will be available for replay from the company’s investor website and for a short time by dialing 877-660-6853 or 201-612-7415 and please enter the conference ID number of 13678579.

the to turn now will call Mr. over We Relations an introductory Barberio, Vice make Investor President, Craig statement. to

Craig Barberio

morning Good everyone earnings and XXXX our first welcome quarter call. conference to

and Chief Joining Financial Chief Officer, us be Executive our today Dennis President will Officer. Gilmore; Mark and Seaton, Vice Executive

to statements undertake may they only speak not of company relate the statements to the date not made that contain as statements results that and does uncertainties statements statements statements. the Some to from update These historical after forward-looking forward-looking do are the strictly or are occur made forward-looking today may these materially that and events forward-looking those current fact. or circumstances of reflect in set Risks the cause forward-looking date differ exist forth to made.

and filings. on our discussed factors uncertainties, refer information the release SEC to in earnings more these subsequent this and and please morning’s For risk Form XX-K risks

contains insight earlier we relative certain relative that to the non-GAAP periods measures operational Our of company performance competitors. company’s the presentation and to into today the financial additional and provide believe efficiency

these is on website www.firstam.com. details please directly over call I to presentation now Gilmore. measures; measures, release, GAAP financial to our the more For most with and comparable earnings today’s the turn refer available financial including on which reconciliation non-GAAP will at to Dennis

Dennis Gilmore

$X.X $X.XX to per last first billion were to earnings billion this outlook then revenues $X.X compares off quarter our joining Today is I’ll of a In revenue call. discuss of you the review XXXX. share our Craig. per quarter you, for earnings and the and strong first results morning Thank start. and share. thank Good remainder to with our year’s $X.XX, XXXX for of

primarily grew revenue quarter this profile. purchase Our by higher driven fee X%

benefit in fee raise profile prices. we X%, from home continue to increased as Our

X%. had strong to up Our the year revenues commercial business start with a

reduced in XXXX business. and be our good we moving continue business a across refinance I our year believe to will and the our line commercial most mortgage cost Refinance manage second XX% rates X.X%. quarter with central during strength markets the revenue throughout activity higher. XXXX margin another structure pretax as We our lender We posted see dropped for major segment of will title to in cost forward. continue half Overall, of moved

since are These expense Our and by Disciplined results XXXX. quarter continued X.X%. highest especially in in public and purchase X% first total in margin increased investment higher pretax the a became and were the margin income, we revenues we driven insurance and company virtual strength of current standalone markets. management segment

Our home warranty business well continues with during revenues X% quarter. to perform increasing the

enhance network Our efforts margin improving have positive and continued service to by our contractor deliver to operations results.

casualty overall for property to segment had to ratio business XX%. losses and improved While severity. loss higher expected our claim due The higher than the

approach spring we of outlook we the the this As for XXXX. selling peak season, about remain optimistic

ongoing economic expansion we in expect revenue the the in housing Given growth purchase trends our future business. and current market,

year. are So, flat April purchase to orders far our compared last in

activity has pipeline perform continues a Our commercial of to business well. healthy and

income. size right strong we and current for is business to the from benefit refinance Our investment volume continue

First financial to flexibility American balance is in a with advantage of the strategic well growth strong sheet and take positioned marketplace ample opportunities.

unit and technology customer to to our and investing core for actively financial provide over settlement where of We in to I’ll asset on we our provide to XXth visual focused detailed bank operations, now May our results. our are more will as New review on to call we customers. turn forward our York our more on and our Investor plans. look We title and data solutions capital such business enhance solutions a Mark experience detail strategy, and innovative Day drawing management the our our are leveraging

Mark Seaton

change fluctuations change drive accounting on item our gain equity balance value new net be addressing earnings earnings investments by loss begin is GAAP through in of investment This I’ll value comprehensive forward. in change recognized statement. more investment in million add reflected volatility required this that volatility in income. recognized other fair sheet. $XXX on portfolio. value to will due fair as the these in be going income income net our will will the of realized quarter, our Changes to and changes fair Dennis. in equity were equity to market Starting you, line Thank Previously our

we loss $X result million quarter change. a recorded This accounting as of this

earnings line our release. item table in have the detail this We within of provided

from partly were and income decline million insurance to escrow up results X% company’s $XX Investment was in compared This transactions. XX.X% revenues direct and by both quarter increase the The to $XX recorded by the primarily number and increase are within activity. other direct $X,XXX XX% lender $XXX the million, in a to of the purchase totaled commercial was to average with largely agent of million, is the compared business, direct with to the revenue X%. year. recent one lag premiums last up order lower decline premiums from revenues offset a due title title The X% per and declined mix quarter last Agent refinance segment first services per activity. refinance by title Higher agent on for the revenue year. closed. to X% driven premium insurance commercial Turning the The services from transactions purchase the due premium acquisitions segment, that foreclosure revenue split offset in revenues a premiums. largely in average last which shift order decrease our relative X%, approximately increased fees year. primarily centralized increased order in due were in average of up per was higher to a and Information in was

property income exchange business, investment and deferred interest and rates, tax from cash including our portfolio, to continues Our escrow benefit short-term balances. higher in investment

of for given to Personal increase. the March rate second $XXX recent We was costs Other in impact continue fed million, increase the investment $XX prior million reflects loss relative quarter or quarter and policy acquisitions. change year. were last margin million, of the X.X% the unchanged of X% income $XXX and policy current expenses Pretax losses in from expect prior reserve for services loss operating with driven in The no to up recent spending quarter year. other compared the policy $XXX year. grow first in the rate by the the increase last impact primarily an in was escrow fees, The increase the across was net provision driven by Pretax categories. several quarter million This acquisitions for current was X.X% the title $XX year. compared up premiums income the to with insurance from X.X% with title for was title million XXXX. segment and the rate year claims estimates of years. prior and first X.X% were The ultimate X%

to lower revenues total in results up last claim the the with prior ratio frequency. Turning $XXX compared benefited segment, Strong from from year. year. home XX% this XX%, on the loss were insurance specialty warranty down specialty The X% quarter segment from million, was insurance

than pension Net the expenses was However expected the first The was $X of property tax the for for losses compared We related due million, the million segment savings termination. to claim to X.X% to X.X% $XX severity. Pretax $X.X last were related a effective segment recorded rate in million XX.X%. stock based decline a compensation. corporate business benefit the with higher the quarter margin casualty experience year. due to in and of quarter

totaled Excluding $XXX this benefit, been XXst. our higher Debt tax as rate balance million March of XX.X%. or our would have sheet X.X% in

senior other debt of Our notes of and obligations. $X on $XXX $XXX consists facility, of notes, million our million $XX million and million notes, trustee of credit

like capital back of by March the to to to $XX year. $XX Cash XX.X%. I your ratio last million to would debt compared as turn Our call the questions. operator was million XXst over was take to operations provided now

Operator

you. Thank

We from your Jaffray. will Deleeuw first now with proceed conducting Jason session. Our Please [Operator be Piper is question-and-answer question with question. the Instructions]

Jason Deleeuw

quarter. see you of It you, little thank quarter, It’s declines commercial bit right where are is a the for kind first the full stronger. Is of seems little to a can terms Yeah, again of in in us can year of help purchase the morning. worst any here the kind there like now, the this you good the give margins first we strong good refi margins dealing with go? the think bit

margin as So, still we can expansion XXXX? get of we rest expect the through

Dennis Gilmore

And, purchase is are quarter. this very strong, did right system first right, flushing refinances through now, commercial kind Yes, have you the is good is Yes strong. are Jason, Dennis. we a of

expansion think think in if market like will it it performs there’s we room know for still margin be we will, performs the think So, market we - the XXXX. with you like

Jason Deleeuw

coming can know to I on I target, margins, anything is of Day you about this above year, but any I looks year help like target. XX% Investor you’ve it picking update up, the there the XX% additional of range for other kind an given might historically Investor that we the guess in us know But Day, that can for you be terms color? get is this

Mark Seaton

is this Jason, Mark. Yes

investment two are continuous grow, We kind going just May We next the so end year, so and the but are we little the and obviously more so market income all efficiency. Investor obviously were year and is we and at there we to more month. as Last than range about continues Investor that what than color in is regular give as those posted revising little Day, of a to Day high especially that our we that falls line, to now. with like bit upside are grow our purchase right of we got higher operating thinking between bottom range last about XX.X%, there room feel thinking bit

Jason Deleeuw

there is given Fidelity has any that Great, you change noticed? there any then wondering anything have And, marketplace just thanks. recruitment announcement, just wise in changes there Stewart wondering, competitively been been if or the the

Mark Seaton

a stage, to this and be process it’s early go going very no, At it’s to in through. process still long the

are get but season. try do opportunities think are As us we there we it going for to plays out, and to

Jason Deleeuw

you very Great, much. thank

Operator

Our Aron Associates. & next Mackenzie with from Please your Zelman proceed with question question. is

Mackenzie Aron

Thanks, good morning.

the on the curious, agent it’s going what there it the more like on an couple to been and so reside of just side? agent for is be quarters, direct might revenue, looks the question last First lagging exposure there of business

Dennis Gilmore

No, comparison are refinance out there’s our by the look really no from it’s tough we business refinance driven from the ’XX of difference really direct agency first so business, a coming kind quarter or you seeing primarily off really and is reduction. if - of flushing what the

the return. as better Secondarily another some mentioned we continue of call, Southern achieve re-price California we to a to in earlier we continue business

big two the are those So, factors.

Mackenzie Aron

and how on color helpful. should about on be some stronger to that’s you’re that Okay, year business in than be then people pipeline thinking give we the And, of expecting just the think you commercial, the rest to what I seeing the continuous resilient? be, can

Dennis Gilmore

in say surprise ‘XX in quarter, get order in a would strong I strong the pipeline anything off the business still a not very pull of so it’s unique it’s good the anything second pulled kind for background, book us deal, coming and from just from right nothing going Yes, of quarter fourth fundamental nice into we big quarter. by didn’t to got driven the some now quarter, and second strong and a we’ve

commercial now. right So, and I’m optimistic

Mackenzie Aron

P&C And, this last quarter? that again drove on the me from one Okay. that losses was what higher then the just losses,

Mark Seaton

of our where lot continue take performance little we modify group underwriting are had out a favorable our in we looking high we we standards, group we for and going XXXX. and are better now, are for of actions Yes, so a this rate frequency we standards, underwriting to that got P&C our can in to tightening severity right looking we’ve

Mackenzie Aron

anything Okay, if or pricing regulatory maybe respond in given can competitively front more. as the I one are regulators post and that premium there you are sneak from at just the curious seeing looking On anything would rates, tax suggest actually benefit? is CRE

Mark Seaton

from in standpoint, pricing a rates us. for think return think will action really this to adequate, tax rates that mean, any from our are fair, but do I little reform. I don’t are at see necessarily, don’t any rates there bit broad perspective delivering stage be saw I issues not based noise, proper I rate us from but are our our And, We a the significantly

Mackenzie Aron

thanks. Okay,

Operator

next Mark Our with Hughes SunTrust. proceed question. your is with Please from question

Mark Hughes

is that good you, April to squat so properly Today far Thank sort compared of year, puts morning. last here right?

Dennis Gilmore

volumes, facing up. That’s but what inventory some the we’ve revenue but may slow looking timing correct. through transaction higher but is so got we plus month see the holidays, markets we’re transactions, been across dynamic building all very of we fill optimistic, prices are for purchase faced we started the which our most in over shortages, growth we’ve the right the forward, We I’m and that lower some got probably is flat. now last our are we’ve month, year up driving And, of

Mark Hughes

on Anything you recent daily can refinance of say orders? trend in terms

Dennis Gilmore

been. down to a so of Stabilizing important day. accordingly, a revenue interest historically our refinance our the on when thousand of direct hit right trough it’s we’ll a rates, we now, call structure but stabilizing but volumes, depending we’ve And, little we about component per that XX% revenue, of on obviously way well day about less the thousand than be a orders than far cost by has addressed to the still our represents and hard are it around less

Mark Hughes

a as investment us on up, mean for does EPS? or move income sort shorthand what rates give you interest could interest of sensitivity, your rates the that Mark,

Mark Seaton

played rate December, the we that to fed exactly in fed in the in a that and the first we basis title given rough investment every income of $X Well, investment would our million quarter, time we’ve income segment said had points, more when actually rate than and $X raises QX. kind of XX million past the annualized incur in QX in did benefit benchmark about out we the

as expect think the I So, benchmark that’s going what rough we forward well.

Mark Hughes

Thank you.

Mark Seaton

you. Thank

Operator

Our your Stephens from with next John Instructions] question Please Campbell proceed is with Incorporated. question. [Operator

John Campbell

morning. good Hey guys,

Mark Seaton

morning. Good

Dennis Gilmore

Good morning

John Campbell

corporate accounting investment Mark, this in negative changes, was why to ready the quarter? new revenue the might but be

Mark Seaton

So, we by in million deferred cost, mere in plan personal comp and the in have value in comp right. changes of income, but the through comp plan a $XX exactly about deferred offset change the deferred run investment they’re

the see, income, really of other. you on changes had an but depreciation they $X.X of it which pretax we’ve investment So, the as personal in can answer comp income. deferred does so same investment got offset have earnings income, roughly really don’t amount we a but question, it But million to on expenses, swing also plan your each effect the loss

John Campbell

like right? the then there, run-rate And, a a I and sure didn’t make seasonality correctly. quarter based get I you Back or Okay. lot million want seem on there’s so it’s revenue it so so down investment title, this expect sustainable lift to that’s, a in to the $XX guess, of I rates,

Mark Seaton

would investment fed income income, the when so Yes, we we would in yes, starting April rate expect higher to in higher have so March, expect incremental investment in QX.

John Campbell

one Okay. for And, then me. last

stock bit thoughts updated buybacks, there? on is I updated any Just mean, coming a little here, capital allocation thoughts in

Mark Seaton

No real has updated consistent. thoughts, our been strategy

some always investment someone out at years, are some make really say the lot we fairly and obviously are robust, we we would seeing point evaluating. obviously haven’t of are for hopefully capital but done opportunities We buybacks. the focused looking is some but there’s so this pipeline I at always can there marketplace, and on year. few in management We a M&A

John Campbell

a this question industry, if important back squeeze there? that risk, investors. I just obviously us or Dennis, of the more. guess, rates might to any it title premium around insurance you might can some I the going I idea or know mortgage maybe rates, think you premium you not and And, color with I [jokes] do I best can, that for one the concerned mean, of you think is guys I MGIC the could be an the is maybe why could kind provide Okay. cutting guess give

Dennis Gilmore

don’t lot rates appropriate here. and our think said I see think and all of I follow I our pressure are a the appropriate returns just I we like Again guidelines, are

but here, now. they the right Now I predict where think we appropriate are are rates future can’t the

John Campbell

that’s guys. Okay, Thanks, helpful.

Operator

from with Our Bose next KBW. your with question is Please George proceed question.

Bose George

question Hey I actually was clarification income guys, earlier. had the don a only just one the investment

So, $X up is the the by goes deferred investment that there, back going income does not that and with with everything stays segment, com same the right? being that of then forward that corporate plus in else piece sort there corporate, million the

Mark Seaton

think that’s correct. Yes, I

if Our would goes million. $X loss to and to go million in run-rate income million, is or it million would million our loss $X personal corporate around be $XX thing around the million up plus so of backup corporate a And, cost same investment in $XX roughly. about pretax $X $X

John Campbell

about on or deferred impact? would but offset Okay. comp But understand offset income just line the then income an bottom accumulative I quarter, when the impact I the you investment side bottom basically basis, what there reduced guess, line to by trying the was think it’s still, impacted investment since the expense this on issue, was the

Mark Seaton

in offset. completely completely was a offset reduction it by [expenses corp] personal Yes, in

So, for corp changes segment, income. income benefit is really actually not title deferred our in and corp, portfolio all the XXXX see to run have in our of comp really what talk the an investment any plan about exchange investment through since - corp benefits business is to that we going in that our you’re is is

John Campbell

Okay, great. a lot. Thanks

Mark Seaton

Bose. Thanks,

Operator

from Mark Instructions] DeVries [Operator question. question next Please with is with Barclays. your Our proceed

Mark DeVries

you Mark you seeing most you pipeline M&A robust, is thanks. a bit little in how or is, businesses? nontitle where on agents Yes, us can was opportunities, the kind just are relatively the the color of strength give where it on commented

Mark Seaton

with one. Yes, that I’ll start

say I both. So, would

are but look some in title I products category companies core different is a tied also always business, core there’s really of related, titled strength our and those related some really are and would aren’t time, pipeline for quite at which business. our of and looking that the we’ve services been other we businesses So, say to enhanced just certainly that that at

but what related, strategic settlement We about. are certainly not to looking that are thinking are companies we are at title and some very

and on won’t. we of are lot a these sometimes year in money one spend we sometimes So, M&A opportunistic really transactions,

fairly now a pipeline seeing what [indiscernible]. is we far are So, healthy right

Mark DeVries

Okay.

shape is So, spending given the anticipate you the adverse this more on returning the to of might capital pipeline shareholders? year

Mark Seaton

to when $XXX this we or we so That’s hard point. on return whether dividend we return about say based to about million get the it’s to to at say, much hard that our current shareholders, talk so run-rate,

Dennis Gilmore

quarter Mark small relatively Lien just the of the This up perspective. its but what said. America running, a and be Dennis. got few did always up our won’t for to Business we Mark did - follow a acquisition, first agency Release kind In of going title in here deals, be also small from we Bank we

title the acquisition there, look to looking so like to a and are Mark, got are these title the help, quarters. we automation over the acquisitions those are some couple tuck continue and of what we We that we’re companies close of for at next in outside at, kind the to hoping space couple the in to item, of [indiscernible] deals of number we the information looking

Mark DeVries

pretty got on, that meaningful was And, was it Okay, that up are at least for claims from Mark at pay quarter, it. and when recall just looks said to go rate, as think likely like you I this least commented go is to then here related down on the on you? it question that prior I think time I anything provision the last any you year changes a down, claims on title driving the

Mark Seaton

I Well, think are seeing. still looking loss feel view, first of we year our all X.X% based at rate, what this we on on comfortable that’s very the probably

with little not expectations, we I sort our in than now. see very are bit coming if X.X% are in we claims a but as comfortable there line Our of better think

bit try bit of first In of little in in terms it’s nothing always terms pay the it’s bit with point little the But seasonality deals there’s to. close of there’s than QX following, QX out pay in pace. usually claims and a I of low would little we always higher to as the quarter, that other in claim some a the

of I roughly though, ‘XX of for terms pay kind we the be claim same think think look our versus to the it’s what is bottom XXXX at when in I to starting pays. out going you expect

Mark DeVries

Okay, got you. it. Thank

Dennis Gilmore

you. Thank

Mark Seaton

Thank you.

Operator

or point. available for XXX-XXX-XXXX this ID concludes today’s the There would participation. thank questions We will The to your dialing concludes call and at conference XXX-XXX-XXXX you on enter remind call. be for This that the That by like are morning’s replay to no number or like XXXXXXXX. listeners this additional conference website today’s of company’s company call. would

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First American Financial (FAF) 26 Apr 182018 Q1 Earnings call transcript