FAF - Earnings call transcript Q2 2018 | First American Financial Corporation

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Operator

Greetings, and welcome to First American Financial Corporation Second Quarter 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 this call is being recorded and will be available for replay from the company investors’ website for a short time, by dialing 877-660-6853 or 201-612-7415, and enter a conference ID 1681408.

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

Craig Barberio

and call. everyone, XXXX morning, welcome American First Good second earnings conference to quarter

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

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

more to refer discussed subsequent uncertainties, on today’s risk these our earning SEC Form For risk factor and the and XX-K in and please information filings. release

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

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

Dennis Gilmore

second quarter XXXX. then and for of Today, and Good review joining results you thank our our call. morning, the outlook our discuss remainder for I’ll

to were X% during healthy moved home we fees across in most Refinance markets. benefit driven prices. our as this Purchase as results, experience where XX% business, geographic higher We mortgage the up to higher. quarter continue revenues demand season we continue $X.XX. per quarter spring share with are earnings to rates profile rising X% increased from expectations. commercial dropped our our continues to quarter up The by this pleased were our XX% selling revenues quarter, second with align Revenues

our However, implemented improved combined and X.X%. business central In in management our margin and total segment Specialty has of result of drove revenues with previously reductions. profit Insurance our conditions of cost our Favorable this pretax structure management our prudent title cost significantly investment building underwriting our market XX.X%. a lender our results Overall, efficient in processes strong bank, of pretax as a the we a and increased portfolio of margin discipline quarter. segment, earned X% posted

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

network our ongoing service We continue operations. and results contracted our improvements positive to from to see

and loss higher Our had business higher property casualty a ratio, to severity. due

segment However, the to loss ratio for XX%. modestly the improved

closing the secure for software anticipate bank. quarter, will a drive million. efficient, our acquired acquisition that platform is The enables expands process. title which deposits and our product Escrow, a additional we PCN $XX companies offerings to more PCN, known four has to Safe significant as agents most During we

our customers. facilitates this for We acquired mortgage ways enhance FirstFunding, lender warehouse to correspondent specialized will lenders. Due to a the closing further explore financing that acquisition, also for we small experience

two in agencies we York. acquired Lastly, and small New title Florida

remains remainder the positive. XXXX for outlook Our of

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

The a company the up pipeline in open has strong to XX% healthy income. benefit business with investment commercial Our also orders quarter. from will continue

to financial of call deploying more manner the turn our shareholders. long-term I’ll that well detailed capital is value our in industry to Mark a to delivers in and positioned results. American review First for the committed remains over a now

Mark Seaton

decrease Higher per revenue commercial order XX% per order in number increased higher for segment the of was average that X% and the in order of year. owner by agent Services up per direct revenue direct by relative Insurance real by $X,XXX, an impact the commercial recent in values, largely premiums. a In increased closed. compared driven primarily revenue X%. was from from The up and purchase to Dennis. a increase the were The you, year. while XX.X% Thank Title other million, average average of year. million, due residential for with XX% last a split mix Insurance recorded within totaled X%. revenues premiums, per an of X% to transactions per to in premium increase revenue offset Services transactions. transactions order segment, were last order the average This increased the one-quarter acquisitions premium title increased the partly lag, commercial average shift $XXX X%, Investment direct Agent approximately and was are which refinance was estate and agent income X% revenues $XX Title orders The offset quarter compared to up lower higher fees the and last escrow Information on increase activity. the with premiums revenue second

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

to quarter increase were impact $XXX were XX.X% expenses the segment effective savings compared We a XX.X%, by the notes, year. Notes June $XX cost the margin driven million Cash million, X% Services from up of XX.X% of $XXX Personnel compared and quarter, expenses prior Other was in of expect was trustee in is termination. second impact This notes were increase of quarter provided and from was offset million, recent year. X% continue with payable normalized $XXX third pension decline driven related our by Net by The which rate $XXX last million of rate the in of with increase. year. to of grow corporate obligations. the primarily $XXX $XX due acquisitions, rate to largely on operating up investment segment balance the The for $XXX June operations income XXXX. recent primarily last the as million of the last million Insurance Fed’s given Title tax was million acquisitions. the policy million quarter loss for of was on title million XX%. an current quarter for a million of and prior senior for X.X% policy, the million, XX, no with compared $XX The reflects in-line provision to the fees, in $XXX or million, for by of in ultimate loss our the with was in other reserve rate current estimates of second million $XXX year, Pretax with million year. in contracts years. production-related unchanged credit consists X.X% policy relative $XXX change prior income other notes losses totaled sheet the rate to tax the and decline escrow $X The and claims our facility, premiums title expenses. Pretax year. $X

secured our sheet have mortgage In offsetting addition million by on related we loans liabilities receivable, which to payable, that secured of are XX-Q. acquisition. and financings to financings be in payable, $XX will to also $XX lenders are secured correspondent items our are balance line these These offset new by FirstFunding our notes reflected mortgages. contracts million of These

and now over pretax to like your million. were for In take mentioned, businesses million, these we call were cash turn operator aggregate back of four $X $XX questions. revenues XXXX, initial to the aggregate quarter this companies an the $XX Dennis the I As earnings would to consideration acquired for the million.

Operator

Thank you.

We will proceed Mark conducting question Instructions] Hughes a be [Operator is with now Please first question. your question-and-answer Our session. SunTrust. from with

Mark Hughes

Thank much. morning. Good you very

Dennis Gilmore

Good morning, Mark.

Mark Hughes

that – about July? growth, Can more was Is you up has XX%. and into quarter order talk commercial a fairly that that little throughout the bit even persisted

Mark Seaton

Mark. is it’s evenly pickup I the we’re In this commercial, to – throughout quarter. a big just pretty in order Mark, Yes. would seeing XX%. say distributed

half X% But are are as lumpy. we you our far down, good of the here. – year pipeline see actually heading commercial a So And know, orders year-over-year. in the about into pretty but July, orders commercial second

Mark Hughes

it purchase you July? since how they orders, on do look in And on touched

Mark Seaton

purchase July orders.

of terms this far, about so down In year-over-year, month. X.X%

Mark Hughes

And then refi?

Mark Seaton

then versus it’s last XX% to so July, down – month. about in refi far year. And relative That’s last XX% about is versus year, last

Dennis Gilmore

about add are more, only homes purchase lumpy is always this July. are the down on X% resale new in that homes is season far and new little Mark, we’re I so But too. flat our down running Dennis. is and about a would our

pretty second now. half right the business the into going we’re purchase on optimistic So

Mark Hughes

the The Then final income how impact should is question. look that? on – we investment at what rate June from hike, the

Dennis Gilmore

get we’ve a than be the of so little about third fact about should QX time that better million basis in quarter Well, so and XX every annualized talked terms that $XX bit raises the in here. flowing we annual We in in an June. benefit should raised the through here that they get points, Fed

now time and a rates think going will progressing, of one strategic the our and the the bank environment. bank continue better investment asset how for we know, it’s of seeing So in been we’re quite have you us, pretty the and income do how pleased talking is into benefits we’re quarter. rise, we’ve it a reasons for because third some we been has And when – we’re to that with about very

Mark Hughes

you. Thank

Dennis Gilmore

Thanks, Mark.

Operator

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

Mackenzie Aron

Thanks. Good morning.

there flowed through the that accounting just quarter changed income, us, happened on that Mark, the was with this investment change remind anything can that Just you last quarter?

Mark Seaton

realized happened everything mark-to-market was gains. that all There’s the accounting nothing that on equities, – sort net of through the change with flows

I the $XX title QX. an million title through did of FirstFunding, income this all. called And is that – exception about segment $X in say, did so net is nothing that I mentioned, that gains. when QX, in investment you wasn’t income quarter. Everything that there’s in through time the only acquisition as really there flowed would investment look have the we of one would that million The had Dennis We that we is there at at onetime goes say we to segment, – closed

So thing was point out. that I only the would

Mackenzie Aron

and all how this just $XX us acquisitions split then And perfect. all through other, on the breakout? that flowed million direct on between information of Rough you give Okay, revenue. some how the that versus sense can quarter,

Mark Seaton

half it or other, and XX% in direct and is investment so premiums income. in And half So info will rough and fees. about roughly, breakout. XX% That’s escrow be other the the basically in

Mackenzie Aron

you And be the – then as just are further look M&A that for pipeline, guys you perfect. next is there the Okay, would year rest of and at? looking year out opportunities there into

Mark Seaton

Yes.

now. full pretty is pipeline right Our

in states. always key in we do, our adding as We’re title looking, opportunities

So there half more year. in opportunities, the are of of the some second those

Mackenzie Aron

Okay, congrats on great. quarter. Well, the

Mark Seaton

you. Thank

Dennis Gilmore

Mackenzie. Thanks,

Operator

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

Bose George

Hey, morning. good

the – Just given the those strength commercial large pushed any of quarter deals numbers on growth, kind of that just in up? fee profile the side, there this were

Mark Seaton

No.

overall Just quarter strong for us. an

Bose George

the come in could expectation, you XX% think you And in strength great. XX% XXXX, this quarter, terms the guys above then to? Okay, that margin just of have do guided that you given to

Mark Seaton

at gave still the rest accurate, at higher of we’re we Investor XX%, guidance Well, year. the the at running I that be for think range the think clearly, the XX%. Day end Year-to-date, that so of XX% I to is we’ll

Bose George

actually, great. it the number? Okay, that you – in an then was earnings, the terms think earnings And of $X million I acquisition of after-tax is did, that

Mark Seaton

number, pretax Pretax. Bose. a It’s

Bose George

Pretax.

then table? I think since – the you’re should use, most at guess, Okay. Thanks, buybacks think we one. – about Mark. that these cash, And free a the of the just last about generating being capital towards on acquisitions of is you apart used clearly not not from moment, lot the cash are, one When dividend,

Mark Seaton

to I think going our the strategy same. be is

to about buybacks we the the at continue to We’ll to we’re continue we’ll look the the front, at right invest level the then we that going appropriate, be opportunities. like But returns can for dividends and through and business if acquisition CapEx we think, going get look share We’re have to want forward. only too, probably expect in if we been. we’ll continue now. we’ll On consider deploy to we

strategy changed So hasn’t forward. our really going

Bose George

great. Thanks. Okay,

Mark Seaton

Bose. Thanks,

Operator

Incorporated. next is from Stephens Please John Our with question Campbell proceed.

John Campbell

Hey, guys.

can you are expect and on kind little provide margins acquisitions? kind of color you from that more acquisitions, a contributions from of the expecting guys of you just on timeline those each when Just the the

Dennis Gilmore

Sure. Yes.

basis, did, we talked at at least we and – of a look aggregate year, So earnings. they of $X you million the revenue acquisitions did how last about $XX on pretax that about million when

are So customers these It’s lot synergies, whole cost And are collectively. somewhat the our they and that’s title strategic allow say segment but us – about margins. these just not that a margin our improve XX% would to accretive experience things. very that just change acquisitions going I our to margin, a some with closing overall not other to to going more for are there’s do of materially,

So we’re about. really excited

Mark Seaton

Minimum fourth the integrations. by We’ll see the quarter. benefits

John Campbell

sense. Okay, perfect. That makes

Operator

Geoffrey with from Please Partners. is & Our question next Dowling Dunn proceed.

Geoffrey Dunn

give benefit jump the break quarter. about But you can you clear I don’t NII a the biggest had very us been way the Is breakdown apart sort there from breakout rate what to some get bit bit know you’ve and biggest show you that Mark, parts? on into of little the are? morning. compares good you Thanks, little any it if more this didn’t how moving income clarity increases. certainly a can year-over-year So investment I moving components your to foresee or

Mark Seaton

I some more give Yes. can information you that, I do – can on Geoff.

thing say a the expectations. of little than I’d we higher investment our this quarter surprised So was It’s a first based. broad income things. very – couple that bit, us The it had

was of the $XX from acquisition. million million when based change balances. I put higher bank, our rates cash. we’re escrow from had quarter. the portfolio, It’s from And off fact we’re income bit operating We’ve there, income deposits. you from going that’s, portfolio, to out million of from When reasons Fed the and investment one has $X balances exceeding So million, expectations balances investment higher more in getting we’re so the our higher came in of our we’re of Again, expectations. broad-based. from sort commercial FirstFunding April, because also And on because our little our the of sequentially. higher. XXXX higher $X investment why just really rates, I deposits. probably this $X $X a better investment We’ve And cash our had make commercial is Exchange, deposits, million the of are the it where then our think it that’s because exceeding done have we’ve About we that our other more break just sequentially, think

Geoffrey Dunn

about… How

Dennis Gilmore

But say though. sustainable, we I would that think it’s

to We year. grow back continue to of the in the expect it half

Geoffrey Dunn

couple Is quarters? XXXX? jump in a well of over specifically as last about showing What big that the

Mark Seaton

getting in that would XXXX cash in say escrow. I the we’re consistent and the with is jump jump that

it’s say $X this up. million. about it’s business, income certainly in look So it about you I investment at wouldn’t was $X.X When was XXXX million. outside. I in our And mean, quarter QX,

of million, about that’s of bucket million So benefit out but we’re So out several. just sequential one $X.X that’s right? getting $XX

So again, it’s broad-based. real

Geoffrey Dunn

it a $XX look more bump everything Okay. And I like quarter, it’s then – that else held rate third the the so you in I guess increase saw you’re when guess June at April. here. you seeing equal, annualized seems in than million

being you Given driver $XX $XX quite discuss, what’s here? million? quarter, the of sure million next I’m versus this everything prospect I not full understand the

Mark Seaton

$XX stretch. million Yes. seems a like

look get at our exceeding level I quarter, with that we’re that for increase happen economics say we I would increase. expectations going we’re of every from deposits. think we’re fully time It’s unfair, getting does of to what’s going when Fed the benefit next the in to rate the of sort terms rates. the the

is going this to not forward. It’s than we $XX quarter this million change to bit sequential closer quarter. So got we that be $XX but might to a than be – going better little million, got the not think we I do expected

Geoffrey Dunn

Okay, thanks.

Operator

from Piper Jaffray. [Operator next is with question Jason Please Instructions] proceed. Our Deleeuw

Eric Robinson

Thanks.

you the guys You’ve now? dive on wanted Eric a to think got price there, you right – more, relative orders do Or that feel appreciation the just sustainable Robinson revenue increase to how the is that? purchase the X% trends I there line. home ARPO about do little the into guys

Dennis Gilmore

some click increases been, But the If home to continues on appreciation increases. in time two, Yes. key markets probably the in it for is the it’s inventory years, price starting at three see, we’re sustainable. first think I

think see normalize, transaction would maybe more end early view again our issues, by inventory that the less inventory So driven little on that’s volumes market. there But up we’ll price appreciation. what really we’ll be sequentially. if start see we XXXX, to But a I the seeing, out start to the it

Eric Robinson

What’s into – it? those more? dive Where you some a little could markets is of

Dennis Gilmore

It’s hotter actually markets the some right now. of

Denver, small. except Seattle they’re Portland, and So increases but in we’re some inventory in seeing –

the of of increases. this signs some beginning So the inventory is just first very

less we’re and a appreciation it transaction. So a prefer closely. market price little though, more mean overall watching with would – I obviously we

that healthier, and would for I market, would better market be – normalized us. a think a be actually more which

don’t we out. it how control plays again So see we’ll that but

Eric Robinson

that And improving terms made that this related closing past improve you thanks. exp, what just quarter ones some you, then Got acquisitions you see the closing and the the FAF you of of do points customer in to your pain help on there, that see can exp? think

Dennis Gilmore

experience, PCN focused [indiscernible] provides about agents is But fewer to is, Safe allows really called that agents a deposits improve the One platform, to and services we the more with did Escrow. very advancing us our closing Investor is and we do It number help that experience. strategy talked opportunity. disbursements aligns agent driving wire on bank. Safe to closing specifically, so efficient, which the PCN agents was for about closing the risks, for largest of we’re our And the product software experience. Escrow excited that have and Overall at key acquisition drives products strategy the specific Yes. additional with Day operating allows our we’re to with that to aligns be fraud strategy, our

Eric Robinson

size the in do on broad-based. think been just in terms mentioned strength then where I strength guess there category? stronger commercial you and – And deals million are like [indiscernible] you that the $X you. seeing just I of I regions of has you deal, know then side, from saying is the think. Got Or

Dennis Gilmore

not so deals by pretty nothing the much there’s now. right large Really the seeing across strength unique deals, about – and market driven whole it’s

the on again, Starting But little quarter. earlier, mentioned up in quarter, soft by lumpy being our always. Mark we’re orders. third encouraged the XX% As orders a

going York, – is, and we’re a ongoing now in is only for number New markets of that’s The seeing the other only significant quarters. been I’d slowdown say thing

So optimistic commercial. in again, on the going second we’re half

Eric Robinson

All right. Thank you much. very

Dennis Gilmore

you. Thank

Operator

from Our with Mark question next DeVries is Please proceed. Barclays.

Mark DeVries

Thanks.

room improve Dennis. Dennis, you the First more see margins question much to for do home warranty? how in

Dennis Gilmore

warranty. home Specifically,

going I be that experience lot continue technology in weather, to is to pretty margins get again, that everybody that. on summer. depending business think our around I customer invest continue in improve But the the so that think lumpy improve can clients’ to handling investment better, during front will and we on business do aggressively business of aware experience, will a a environments to continue little that, just just there. our

a title we about than growth its business, the its like has our business. we so little and cyclically So its we curve Optimistic different trends, like performance. like

Mark DeVries

sense just like in magnitude Okay. how the margin? But any of of more of range you upside much see

Dennis Gilmore

do We I typically But there’s don’t upside that break business. in that think out.

Mark DeVries

got Mark. buy Okay, finally on here? how it. then doing discuss for IRRs backs expected just compared those And you’ve you and acquisitions your to been Could these

Mark Seaton

XX% Yes. looking I these, at say at mean I every IRR. that’s time want no synergies all. revenue acquisition, an least would we a to can get that. we really XX% with we think And at we’re assuming

they’re on the on there’s like P&L. accretive investments be also good stand-alone to optionality they’re going And feel upside. a really basis, we immediately the to So

we be strategic So a vision. aligned with feel like very they’re of going our use to and good definitely capital

Mark DeVries

Okay. And to IRR? of terms that buybacks you the in evaluate compare how here how does

Mark Seaton

because it’s I us going we very strategic, the the which deposits attractive offer that derisk the would say, we in products to transaction. they we to the take more obviously allow just These can’t are are buyback. in customers can our more bank, enhance

our invest did rather what that’s assuming to kind are same the always business, IRRs we grow the we’d So here. of and

Mark DeVries

Got Thank you. it.

Mark Seaton

Thank you.

Dennis Gilmore

Mark. Thanks,

Operator

George question with proceed. We follow-up Please by have a KBW. Bose

Bose George

thanks. Hey,

pricing regulatory state the Just the Thanks. Has wanted anything ask Just from that heard about you’ve that’s there front. regulators? front different? been on anything to

Mark Seaton

issues. No. No no change,

Bose George

thanks. Great Okay.

Operator

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

now disconnect. You may

First American Financial (FAF) 26 Jul 182018 Q2 Earnings call transcript