FAF - Earnings call transcript Q3 2018 | First American Financial Corporation

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Operator

Greetings, and welcome to First American Financial Corporation Third 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 and for a short time, by dialing 877-660-6853 or 201-612-7415, and entering the conference ID 13683867. the to to make turn President Barberio, I'll Relations Investor an now, call Craig over Vice And introductory statement.

Craig Barberio

and Conference everyone, Quarter morning, welcome First the Good American XXXX Earnings Call. to Third

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

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

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

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

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

Dennis Gilmore

results Thanks, then discuss you and I for quarter thank our Craig. third and morning will our Good joining our review call. outlook.

Refinance and share of $X.X Revenues direct on we profiling. accounts driven the up during of demand X% quarter higher At for just quarter, per majority quarter continue title revenue. of we as up revenue our now commercial business healthy experience revenues revenues title by the across of $X.XX were XX% markets. segment, dropped were X% this This our X% our to posted earnings our billion. purchase fee

and growth in XX% Federal the Overall, in rates Although to last impact our mortgage as short The up of income continue on our year. relative XX.X%. has material our trend had increase Reserve rising to a segment pretax a negatively throughout will investment volumes, our rates. title impact this drive posted XXXX, continue investment raises income term rates help earnings margin the

Insurance and segment X% increased Turning posted of by a margin segment, the revenues X%. the quarter Specialty pretax during our to

Our home well warranty with up perform business revenues continues to X%.

claims ratio Overall, However, Specialty casualty frequency. for loss in-line business experienced Insurance due we at quarter seasonal unchanged The higher XX%. for ratio this severity factors. loss property the at normal and segment largely lower declined to with claim the was

the a well-documented affordability the contributing X%. reduced number orders the declined open a of housing slowdown During In quarter, third to our factors in purchase quarter, market. purchase

adjustments to continue investment investment three continued our to For compared October, healthy and the us maintain combined our appropriate Heading Federal with continue last financial this into orders will result our to down to rate to we focus rise efficiency make weeks continued of of income income the on in the with as economy year. commercial will structure. purchase Longer term, Reserve the rising a cost performance. X% quarter, fourth trend strong offered our hike. and strong response, is In first September has enable pipeline a

focused now detailed more term value assets First turn long our is delivers to Mark a a unique for American review well-positioned capital I'll financial our of to remains commitment our over Given the and in that call innovation, and deploying manner to results. on shareholders.

Mark Seaton

due The to Higher revenue average closed increase XX%. on bank direct agent increased premiums short order. revenue down income increase per in premiums. volume order average escrow our total a revenue cash mortgage Dennis. fees origination purchase which offset where million, primarily in segment, $X.X services direct the related with average segment in offset compared were escrow within commercial per down per as and held a mix by last average were premium largely This deposits, from in term activity cash the Title in X% while the title with up and increased offered we our drove business order order income higher reflects other and agent real by commercial interest for decline September revenues investment and in benefit commercial was the XX.X% portfolio and were revenue higher transactions title increase lower Thank you, largely Insurance driven billion California. per short by approximately $XXX rates balances average recent and down to Information are to lag from Declining in X% decrease XX% cash, last Higher foreclosure of of direct compared The X% The in split million, $XX XX. largely the transactions insurance exchange premiums was X% XX%. year. revenues Services transactions. company's increased from the XX% shift and revenue orders to lower the and term In premium debt year. balances. the property $X,XXX, higher one Investment Agent at and the owner, tax per securities values the deferred interest average revenues estate of acquisitions. a quarter order residential purchase number recorded rate and in

by a increase. a benefit primarily income legacy higher The provision cost grow quarter, $XXX $XXX were up year. operating was continue up regulatory was from in given increase prior X% and by September on recent higher the a by for associated related the The last million year. acquisitions investment rate million, cost fourth X% incentive personnel expenses expect prior million quarter million, decline current from was the an X.X% fed's the to for rate to with with matter. significantly offset compensation. increase year $XX Personnel driven which X.X% expense employee or to related was fees, was at claims Other cost driven We This year. title to The escrow other reflects rate and and of ultimate no losses in policy, policy change premiums title the current loss for for the years. policy the Pretax compared the Insurance quarter estimates was income last XX.X% of Services Pretax segment prior million reserve margin third and in was million third quarter XX.X% with loss the $XXX year. compared XXXX. in with $XXX Title $X.X unchanged

of our million of other for operations contracts compared tax the the Cash year. termination senior million expenses of trustee quarter back $XXX like obligations. of with the XX%. Next a tax of would notes of September and rate which last to in up $XX corporate to million quarter $XXX $XXX questions. the segment related was plan in Notice with your third was provided million XX.X%, $XXX to expense the an on I to million, million XX, company's operator totaled rate our sheet The $XXX were the pension completion $X balance effective as consist facility, take by notes, over and the decline XXXX. million million, of on notes of payable call now our $XX due normalized on turn credit and in-line X% to

Operator

you. Thank

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

Jason Deleeuw

just think by was thanks but the down morning us the there up get and and Can purchase some helped margins you income. Good title the taking volume? Can margins The forward? with the help going investment for revenue slower my we were about expansion still questions. even order

Dennis Gilmore

to XX to XX Dennis. our objective we margin is is We think for out available set this Jason, XXXX. absolutely

of bit commercial range growth to I growth all, business. is a All our reset happening our think think it's given now, going investment income now the in purchase go little we right market right will a be through is as benefit accurate. in the we've to but --

confident the I XXXX now. right think we're in going

Jason Deleeuw

Okay.

competitive just strategy anything year the the you Is then that thinking acquisition how there or do in the And competitively change or transaction about one, your if would good. differently approved? next thinking next approved. that you're if Sounds is the is Fidelity-Stewart any on

Dennis Gilmore

direct to been and actively continue recruit We'll both to No. we've do We'll agents. what continue employees doing.

Jason Deleeuw

And factor call there trends. last then for The were order bit can a American explain little one. out it. specific difference? as to Got Is volumes softer there industry the the just any you the First than

Dennis Gilmore

actually accurate, don't the that's I by think way. Yes.

were and that following -- We matching were by way I continued industry think trends. X% we down the our is which October in into quarter the the frame. time

not So we're We're tracking trends. losing actually shares. industry

So I think side. probably when you're out back the referencing on competitor, you acquisitions the that should

Jason Deleeuw

that's and I all you. Thank have. Got for it. that Thanks

Dennis Gilmore

you. Thank

Operator

you. Thank

question comes SunTrust of proceed with next from your Our Mark question. Please Robinson with Humphrey. Hughes the line

Mark Hughes

these that strong how thoughts balance Yes. your I on want you Thank just Good you. days. the volatility shared get in to -- sheet market, looking latest are buybacks, at a little morning.

Dennis Gilmore

the opportunities we're evaluating every got to just passes, and buybacks other have. stronger. we day Thanks gets and the it We're relative position for Mark. It's real stronger something a question, We've that the strong capital discussing.

Given they've the are certainly time. more in expensive off, than recent been now buybacks sell some

Mark Hughes

start order And then anything, fourth other I at strong, suggested specifics commercial flows, pipeline the any have is of here think you the quarter?

Dennis Gilmore

good fourth and third than strength quarter other the No quarter. that in going

optimistic into on our going we've economy We're XXXX. strength. and very quarter. So of in the We're strong also offered across in very markets got a commercial fourth almost the heading got all we've pipeline strong the

Mark Hughes

Thank you very much.

Dennis Gilmore

you. Thank

Mark Seaton

Mark. Thanks

Operator

you. Thank

proceed the from question. with with Our Please line comes DeVries next question Mark of your Barclays.

Mark DeVries

there was a fair your that smaller Staying pipeline? the up and Yes. seeing business. you does shift look how the for ARPO amount quarter a larger mixed with The Were towards larger transactions versus in commercial in year-over-year. mix

Mark Seaton

portfolio them quarter deals see broad the assets premium a deals. just a a and saw the doing. high of lot fourth nationals like commercial seeing the of we heading at base that continuing have say A hand straight just into wouldn't see the in I plus we're terms strength [indiscernible]. huge real in quality pipelines What to million-dollar our pretty lot of multi-state deals, strong we're shift we We're go seeing here. we're is

Mark DeVries

Okay.

sorry missed I quarter-to-date kind order give -- accounts? answered purchase think stand, commercial this the I can if far where an we Dennis so you us on residential and both -- update this, of on but

Dennis Gilmore

Yes.

got Let We going on X% me side. on term month-to-date, is residential on, we the transactions into down quarter orders. X%. about were purchase That take Right October. on now, continuing the

quarter. difference the no from So real

recalibrating the is geared market. what's and resetting, the now I housing all markets. to really probably market more think just towards dollar's moving market a on The towards right going purchase is

slow looking inventory levels we're on time products depreciation anticipate XXXX think up. for going we probably market up, home starting at I to going down,

transition, I a market, be with that Now, when but we're choppy. probably go through probably we'll think moving, we going more balanced

in The make is going to the other thing, clear, sure everybody we're just too, XXXX. optimistic

got strong are into got that, we've on, very off going growth very favor we're forget not too, for Let's right a now a happening wage economy, strong housing. we've demographics

through XXXX this going probably resetting, we're we're into So spring selling optimistic with season. while going especially

Mark DeVries

higher higher towards a that Okay. with side, on And hump you're also residential on mixed ARPO price, bit states the just seeing shift generally the prices? or is just of a all

Dennis Gilmore

it's We purchased the housing because Mostly rising just fact housing little year growth prices a when think starting ARPO purchase we'll up raised the but next primarily geographically. rates to to several by lap, had positive start simply over quarters, driven a ARPO it's we we're to ago shift leveling that housing really and assume fall a being start and prices. see that bit our Not prices. mixed it's and rising still that seeing

Mark DeVries

Thank Okay, you. got it.

Dennis Gilmore

Thank you, Mark.

Operator

you. Thank

Associates. comes with Zelman next Aron Mackenzie & your the question from line questions. Please of proceed with Our

Mackenzie Aron

side we're what on quarters. to California in direct wanted revenue than the when in a just and few premium some changes be should few there just trend there I little ago. the lapped. dig a I were seeing escrows Question bit on seeing last the changes on the agent in we're quarters weaker those what over Thanks. being know

Dennis Gilmore

It's million down and all We that's right California. now. were happening $XX

two. with that California. run that course the probably There's on agent purchase us, from that the to California quarter right So next we the have will price impacted unless can But continue to reprice we I trend but continue an over or we de-emphasize think get itself California points. also

Mackenzie Aron

as update helpful. smaller on are agents opportunities that's well? the M&A you in the there provide of the can that is then terms businesses And other side on Okay, pipeline any just M&A of the or

Dennis Gilmore

point. with We part built We term a We We actually rebalancing. close think quite again that actually the just on the do on changing deal. didn't had were dollar market deals prices we're to few were quarter. the Sure. ready a using and the a were at

sense perspective to goes excess and like forward, better be the makes transition. if aggressive. got this market XXXX get that think we'd Looking we'll I deal us we'll opportunities see in as a through market from this the capital lot and We've of it's inner, to

Mackenzie Aron

you. Thank

Operator

Thank you.

your the Please line question proceed comes Campbell Inc. with Stephens next with of John from Our question.

Carter Trent

taking This John Hey, questions. Carter is Trent Thank the for place for guys. Campbell. my you taking

a market, guess, timing residential but down you next to reset I a do far as don't be to the shift On when know do currently, a you stage you bit you year? but lines have as we're will to buyer's crystal know ball, next purchases I had year? in expect think of if market

Dennis Gilmore

the call make 'resetting' right to Hard now. is now. right The happening

obviously selling optimistic time going key season be of part into will So the frame. year spring flows that and we're the again, the

Carter Trent

Got it. Right. for me. all Thanks. That's

Operator

Thank you.

Please your Our of next with line proceed question George Bose comes from KBW. the with question.

Bose George

guys. morning. Hey, Good

Mark Seaton

Good morning.

Bose George

especially basis raise the you income, September, maybe that Can good works? is math you've talk it how diminish Does to $XX given Thanks. this several about in still have that next you just raise one XX back to of Going earlier, that as that the million as moves income investment point, forward? year? investment

Mark Seaton

Well, last year, more realistic a a year and more able we When basis assuming over back increase than rates. XX remain fed you basis few a number $XX for lot million do balances or when like million more get we've are million we to the it's reason raises is reasons. probably a on balances because our that is more and every look But like $XX so than gotten higher it's point ago, now forward, time our just million had points, going the number the that obviously the $XX $XX XX risen. actually we now, lot deposit confident have balances we a gave so fewer

more a run is million realistic $XX think rate. I

Bose George

something on then Thanks. up cash and And went Okay, consolidation meaningfully. happening in balance sheet the there to there just terms there? some Was like the great. else was actually balance, that looked of it

Mark Seaton

commercial the closing. over quarter were carried It's timing. end's some transactions large very really just had large We just that deposits we

as So like which it of ins do cash down billion post the sheets September of That quarters we we really has XX. of with a and it have to balance the lot looks timing $X.X come outs. on has even did

Bose George

just on of then you're going Okay. could the actually just there to what side, in terms And those data back things acquisitions? done question, the at looking that are complement M&A you've

Dennis Gilmore

how a actually pipeline. the deals right There now looking they we're in out. play are. There are of couple at We'll see

continue look to We data deals. at

Bose George

you. Thank Great. Okay.

Dennis Gilmore

you. Thank

Operator

Our question. & Instructions] comes Please from next line the [Operator Dunn of Geoffrey question with Partners. Dowling proceed your with

Geoffrey Dunn

by the or question Thanks. very if wanted I'm to something driven It's the on. to like a being composition on numbers there's these curious ARPO in general going ARPO. the seems closing not else from American, quarters. It a bit slowdown I seen shift the marketplace but Good unique results. First in commercial the really in just versus a is we've growth rates been strong a maybe before. of morning. trend closing and Has several follow up over growth

a bit is standpoint anything an can from commercial. in really changing expand if So that industry if somebody on little maybe

Mark Seaton

A to year maybe of that you go look deeper on very there, the look transaction. large four we size a $X a quarter. we five. We just ago, at the That's of we bit stratification premium. deals this infomercial Geoff, have when little had closed, and those large of million we getting we're deals close a like

XX I seeing we So though when really mentioned the quarter $X seeing and look at earlier. range, deals are ago deals this we're a you was is XX. to million as $XXX,XXX not of growth it What those year in had we

a a mega-deals, an said quality higher in range transactions. increase middle the we it's the before, driving frequency as but like that's Not deals lot. have seen ARPO higher I So

Geoffrey Dunn

is of And type type that range? of what to a deal $XXX,XXX $X million

Mark Seaton

which talked great offices Just doing of I answer of strong. commercial that, the New just continues are seen properties. be in kinds all lot we a I We've really York, to other mid-market a have have don't but but softness for about, said strong.

of whether demographic. types across multi-family, that hotels, of properties it's strength terms industrial, broadening seeing In or all pretty of we're or again,

Geoffrey Dunn

right. All

general? kind really is of mid-market this So to

Mark Seaton

Yes.

Geoffrey Dunn

Okay. three And down purchase, overall weeks for digit mid-single assume know then first for give Dennis, number weeks orders? typically sequentially overall three this but first the similar you I of the

Dennis Gilmore

yes, we're X%. purchase, down On

quarter. last tracking So

Geoffrey Dunn

resizing to? But similar overall, a probably number them you're

Mark Seaton

Resize, Geoff. about we're running day, XXX a

Dennis Gilmore

not XXX of XXX Geoff, Geoff, from day to not revenue. But it's It's our point about we on now. the again, of direct right less a profitability. X% volatile I of dropped It's in would refinance. that we're significant contributor quarter. a kind than out,

Geoffrey Dunn

probably the I why overall assume the purchase. to similar of number is That's kind

Dennis Gilmore

it what it's hope is. but it soon, is we Obviously stabilizing

Geoffrey Dunn

Thanks. right. All

Dennis Gilmore

you. Thank

Mark Seaton

Geoff. Thanks,

Operator

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

now disconnect. may You

First American Financial (FAF) 25 Oct 182018 Q3 Earnings call transcript