FAF - Earnings call transcript Q4 2018 | First American Financial Corporation

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Operator

Greetings and welcome to the First American Corporation Q4 and Full Year 2018 Quarter Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation [Operator Instructions].

As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Craig Barberio, Vice President, Investor Relations. you. Thank

begin. may You

Craig Barberio

and Conference our Call. everyone, and Fourth Year-End Earnings welcome morning, XXXX to Quarter Good

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

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

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

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

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

Dennis Gilmore

of Fourth primarily for Good and per the related results, earnings year net I equity will outlook morning, then of losses, excluding or value call. quarter our quarter $X.XX decline discuss you and full XXXX. to and begin in for our thank realized securities. Today, joining share fair with fourth $X.XX a our a were our review

our commercial while our transaction as investment combination up revenue and most quarter of the in investment this commercial were from by XX% earnings largely business was as strength across in types, markets, and income broad-based Growth a asset our size. business, portfolio. Our well cash rising was driven

Revenue our X%. of purchase In the investment we balances a continued declined addition, open purchase trend business fell on X%, This effect open as and a had quarter. January income orders from escrow growth X%. our commercial in saw positive in in orders purchase in residential decline our

far investment X% revenue posted fourth revenue has accounts down XX.X% fourth in XX% XX.X% as from or across impact revenue down ago. continued a of [ph] margin country on quarter weather realized dropped the the had of year X% direct a rates. orders Refinance increasing market quarter to negative in in segment our quarter, Refinance So recent volumes. a to as February, are severe for mortgage the this XX% losses. Overall, our the pre-tax net excluding title adjust

business warranty our deliver home for segment. strong Insurance Our Specialty returns to continues

and casualty again impacted property our However, was California wildfires. once by business

casualty had compared reinsurance $X This year. two events one limit, quarter last exceeded our such business property retention in wildfire that million our California Northern and event with

As overall realized a of margin ratio X.X% modestly the or net result, with declined pre-tax excluding losses. segment's loss investment a to X.X% XX%,

Turning over to earnings $X.XX, Company per increase of The or XX% delivered year last share full XXXX. year.

average million to of by XX% complementary an Company's our margin of in PCN/Safe realized XXXX, to our management, dividend losses, repurchased FirstFunding, in our remained With to we enabled stock $XX.XX. a or efficiency. valued our release history. offer active title customers and net acquisitions pre-tax price at excluding ways and lien business $XX the XX.X% was increase Escrow, XX.X% investment Our raised of addition The at us new risk We and regards reduce million. highest capital completing $XX

capital risk our to the opportunities return. continue with We adjusted allocate to highest

to outlook. Turning our

are domestic acquisitions, for title fourth year. continue XXXX, will the to reduced monitor will headwind we We Given in order and staffed to the market quarter a be in income. our decline we've XXXX. anticipate purchase X.X% believe ongoing conditions Net current in be residential as structure trend, closely decline by but rising compared that will we market We cost to our but needed. partially ourselves the adjust the in by investment headcount adjusted the last appropriately aggressively orders, of given we've position offset

We also another XX%. long-term expect commercial In expect XX% equity deliver to objective, our our pre-tax strong business margins financial year. a return achieve of on XX% to of will we XXXX, a and title to XX%,

our leverage process, increase developing strategy focus improve innovative and to platform further As we XXXX, in part services, growth and and These on the the time to the November, improve anticipate first digital customer efficiency, expand industry. that closing expansion include We In we automation assets. utilization solutions increase this launched title artificial our title will the of of and our will continue platform our process. our production extensive that of production reduce data efficiency. chain intelligence during risk our experience supply of over

from our a to services and We agents. achieved its their our also deposits when bank, banking key First XXXX, agents, took Providing milestone first our American reduces efficiency risk. title Trust, in increases

In income. benefit investment increased we addition, from

We we will Company's year proud innovative a and financial continue produced our XXXX. others I'm throughout record and XXXX. in these to focus strategic efforts of on achievements that

in to Lastly, Fortune to a row. the work this named we've for I'm best fourth pleased announce to morning XXX been places year

call I'd our insurance the turn our now service and our results. Our settlement employees, review detailed to to for be premier remains and shareholders. Company's vision of for company the more over financial like our Mark consistent, to title customers,

Mark Seaton

first I'll commenting change and a XXXX, that on results. our in you, took fourth an the had accounting significant begin impact on effect Thank by quarter of Dennis. quarter

the recorded changes both includes sheet in fair the of debt the $X.XX income equity was first sold. income. were the quarter securities was balance Our unrealized fair of value they to Beginning sold. of of in changes new This income losses securities securities. on from Generally, of value value when volatility the equity This not changes change in does security are earnings of standard create investment will fair for be net apply and changes income only fixed realized regardless value the in portfolio net moving per and in which in equity over Prior believe debt $X.XX. or our XXXX, more excluded recorded share XXXX, were long-term. accounting quarter, the an earnings were statement GAAP in this investors whether in forward. to our the recorded required statement, the will important We

year. to prior Insurance uncollectible average the rate with Other balances Company's gains other due benefit increase was higher we debt X%. However, recent partially prior and portfolio XX% quarter, in higher reflects earnings unchanged that cash measure lender realized spending, Services one $X,XXX, This from down premiums more Beginning on acquisitions. securities in per premium as a with was transactions XX.X% order in to are for the XX prior or reserve earnings recorded up for per a year. agent shift tax in cash, million, per certain for the fees, closed. our from million to net agent of Personnel to and business of deferred last and last decline a reflects income The a the operating December quarter was it Information In Services The a increase in operating title The quarter to the were balances. lower Pretax XX.X% fees severance was resulted these to metrics losses business approximately XX% X% exchange totaled million, order Agent excluding mix We and reduction premium Title billion by year, impact acquisitions the included evaluate primarily $XX acquisitions. The from year. release, additional offset revenues property commercial of policy, with on escrow metrics metrics, and escrow of expenses was Insurance title operating XX%, detail and the no XX%. $X.X million, number costs by page from believe offset discretionary expense the due cash decline escrow $XXX increased X%. our year. quarter year. along have Investment policy reconciliation by estimates direct were an in operating disclosure split were of these commercial Company's production our of GAAP compared Insurance revenue given for rates to that years. of recent business. they direct compared a strengthen provision year. credits, $XXX impact key losses. premiums, Services X% margin and within Title $XXX income to for short-term the are Higher relative an in purchase impact increase of on $XXX in ultimate make with or increase year centralized change rates of income prior the revenues per interest in while Higher on purchase to performance. to to short-term quarter fourth investment order and Pretax and transactions average million revenues to a or volume and recent increased $XX The segment due our Title more XXst. offset and drove performance. investors largely order difficult from in was million, last lower related revenue title up investors, of provides order, XX.X% direct held The lag the claims driven premiums loss write-off this table This rate the the loss segment which which X% assess for increase due deposits, a and rising the and provide average $XXX and transactions. the primarily compared down X% last premiums. current segment, primarily X% by and average compared commercial appropriate decline the our higher The up was for X% costs a revenue with our policy in interest was of other bank, a revenue increased orders in we to current and were balances down were relative average where order million the the the year. basis,

to quarter we quarter. was this The January, $X.X than million expenses net Net by XX.X% margin the income totaled XXXX were compared tax of XX%, effective X% compared benefits for of shares due of reform. investment the true-ups our tax to estimate Of pre-tax the repurchased of plan. week impact to related the this deferred primarily Excluding $XXX was of corporate first in initially to with year. due the rate lower year up the operations $XX.XX. XX% compensation quarter. investment fourth rate through quarter $XX XX.X%, October million, normalized had million, last we $XX for segment up $XX From Those was average provided for XX.X% price losses, last with lower tax the of compared realized year. recorded million last amount, at an million in occurred Cash our

notes Although as of the consists senior December notes, of take will our the to to $XX we million in trustee on your I turn on have buybacks of Notes not questions. payable opportunistic credit like million over other on totaled would and repurchased to moving balance XXst, we contracts which be $XXX obligations. to million continue now shares back notes $XXX and sheet of facility, $X million and operator million our February, forward. call of $XXX

Operator

[Operator this At we you. question-and-answer session be Instructions]. will Thank conducting a time

from question ahead. go is first Mark Our DeVries Please Barclays. of coming

Mark DeVries

months? I you're purchase on of inflection the for particular, driving was in cautious kind deceleration that XXXX, in think that think hoping the course? optimistic outlook title of the kind really color why that market. couple to the of not last reverse get I some you What you additional of do guys this in kind on remain insurance was And

Dennis Gilmore

our for been the that Well, a consistent if look quarters on we X%, January. pretty consistent purchases at going few into quarter, down down were orders orders and fourth were -- open

of me, believe I in appreciation price we home leads really that just process up, We think to on it process market got in is up, going I've just of days market the resetting. I the us are markets the supply the believe before, it to said the so that resetting. going got slowing,

the look believe we the market of market be forward when So purchase will pressure. we -- into under 'XX, rest

we expenses. expect set down We the to be why fourth it in way did that's up the and slightly, quarter. aggressively We business trimmed the we our

benefit, on market in we're So we a be that and the another call, wrong to with now will year. again, -- do strong is, purchase will if it'll our lead commercial view believe the a market be that couple right down 'XX, of

Mark DeVries

And last Dennis. a comment, then follow-up that just on

actually little we're assume that here commercial, this because this are you but justifiably of you new historically around think, and are outlook like every saying the we that you that almost What comfort continues you've after single year continues. seeing an think can another guarded we've-it to continue, be I the been for record that more I a feels year record, strength? setting gives area

Dennis Gilmore

a We fourth great had quarter.

We have a in strong franchise obviously unbiased. commercial, very

think have quarter. have a operation, best the best I we and we the strong, fourth people strong but

XX% though. up the quarter are We in

got types, to with a asset good had a versus 'XX. also that always number of large deal a into one we sizes. strong are deals types, We've in quarter. year said, were We going so property deals in But lumpy large ago, all the pipeline us any

we're I were of be here. down I'll forecast we 'XX's going we optimistic record. we but into be If and believe again So slightly 'XX, to have, consistent probably will off

Operator

you. Thank

Our from coming question Piper next Jason Please is go ahead. Jaffray. of Deleeuw

Jason Deleeuw

on I to just the follow wanted commercial. up

give for or XXXX, versus the that smaller-sized in see. you that If then, are for at you talk seeing opportunities you regions pipeline kind of And us strength in of you can any terms looking about regular the pipeline the deals could large of when deals? the what you're color

Dennis Gilmore

a Board area, fourth in location, type large was deals were We were for here quarter. of a in New us the on really strong York lot strength across that the that against size, the so the and

We good 'XX. of have deals a large into going pipeline

but sure again, make So -- clear. we've got a so Large quarter, we're be again, from always lumpy, we benefited pipeline to but deals deals large -- just the into are strong 'XX. and in going fourth

Jason Deleeuw

investment fourth help quarter? size And in another you any we increase kind then we think saw can about what income, December. the of, hike Fed on the the income, from rate And had investment us in in

Mark Seaton

got we point the when in rate our basis we the average got Fed December, that. increase So, getting we're raised XX on in so a that balances,

look happens else I annualized we $XX So past, a as quarter. for, that about balances One balances benefit in think that based on quarter, do we've were at Typically there in our a would holding they thing on being everything is talked especially million in though the that. what little less expect, with fourth the equal, commercial we are commercial, balances. are higher because the of balances transactions lot and bit first is

will we but as the So too, to think definitely from QX. and probably is QX investment rate going same saw rise income QX to probably not rise next from year, growth just it QX we

Operator

you. Thank

question of go coming from next Please Our Robinson Hughes SunTrust is Mark ahead. Humphrey.

Mark Hughes

-- -- purchase in that from on digits side perhaps? was or went kind order per revenue side mix The there process upper to Was this down shift the part on single of X%. resetting of up there purchase

Mark Seaton

couple there. a There's things of happening

coming years that washed that was down. a now has our we reducing purchase rates raising ARPU been two has were The ago, the of revenue lot of lot in and per A of because first rate has that thing kind it has is, been growth out, order. average of

driver thing biggest that rate saw is is a starting is other other of the little quarter, the over bit but we we at The a of states, a and in lap shift. -- lot that of we're our ARPU -- Obviously, to than year the California in shift, fourth we we mix the the least get higher ago. little a mix a bit did a saw fact increases

Mark Hughes

here the the of obviously what market, us in That's capital again? but some decision sense you down the whether was be dynamic Does you front, the February? attractive, can informed your fourth and more in shares management -- continue you question. active that the on then saw stock the And give some repurchased quarter, to your in that

Mark Seaton

purchase stock significantly, that some felt that market because time the stock pretty was, October we down, on the that quite too saw had came counts choose we was we're of the the of significantly, that, was and call, What some because like were at down of was just our So, in of was of quite down disclosed enter we we good selective pass to our market. news of that that order because heels the our earnings to buyback out. was our dislocation

So through we were January, shares buying October in week and that. really the of we feel first about good

and February, it's always we're like a As we'll looking feel but I it's at do we call, mentioned in buying investors good for we're that on thing it. not our the and something

Operator

you. Thank

Please is ahead. coming of question next from go John Campbell Inc. Stephens Our

John Campbell

New they guys they're you divesting Just advantage on some hit of the in assets obviously to FNF look something Stewart, in and that or the take of? the If is selling Stewart [indiscernible] a York. would state,

Dennis Gilmore

potentially out more We for if assets just regards sure. our there we're not for deal. deal, you focused the we looking on a right us, the are understand deal, at look put the it, to take that how plans, own potentially we're so overall it, But with on at

really are the greater to and efficiencies of that company in nature. things focused We innovation on drive

So, are forward. we're got what we on, very very looking focused and on going we've optimistic

John Campbell

And Stewart, more then to related guess. I one

like very good it think guys Are year-over-year. Stewart's was down, You out down you kind commercial do there? of Is to up the thing, was go deals just X% FNF the you're -- you I it taking same you growth, feel lumpier share did put guys?

Dennis Gilmore

we grew commercial like have I that in from took I market. mentioned we directly strong and Stewart a share comment think but earlier, well not, can't franchise, very we if or I very

John Campbell

credit, size one-time for that? earnings exactly up kind in one is what And that segment the can a event? of Mark, us? title in And last from that then, Is first, me. increase on then the you

Mark Seaton

me fully. number let just that get So

our the it's million of segment had credits, an in is higher a Every I title that rates, through an other When comes it function ago, hits the as as it like for offset $X -- look as just which line to you revenue, some expenses, states raises about this with certain time of balances, quarter operating about income we of item, So and benefit which expenses. Fed rate, some we earnings comes where get was a credits. at interest really investment $X of million, about. and offset talked in year

investment see in growth a also credits we see which only earnings this not we income, growth quarter. saw we but in So a

up about million million $X quarter. went it to $X from So this

John Campbell

not that's So technically one-time.

you As on on rates both income credits credit. and the or the rise, get benefit using offset investment the then revenue line

Mark Seaton

Correct.

Operator

Instructions] [Operator is Compass Our go next Please from question Chris Point. coming of ahead. Gamaitoni

Chris Gamaitoni

Thanks call. for my taking

what's buybacks, the purchases? the the authorization on January First remaining following

Mark Seaton

We have of as $XXX of repurchase, January. million available end for the

Chris Gamaitoni

quarter? Can reached purchase a of outlook, the the -- for you first the fourth residential the side the in what business in you kind was impact quantify, obviously lower in severance at levels

Mark Seaton

It level, we've million quarter, we in each or million. was have there's always million million fourth the $X but typically done $X $X quarter a this was higher, so quarter, $X some

Chris Gamaitoni

the noticeably Relative business. in seeing you're there market, the or weaker mix is any about speaking kind your specific purchase are there than direct geographies are of that your to weakness business -- others, in noticeably stronger

Dennis Gilmore

seeing part but direct definitely the toward the western -- in range we we're When and right orders, probably slowing, to about will our now. we western we country, the have now a be the western states. overall take in right talk now. bias weakness -- our again, market again, driver is seeing probably But of overall right would the I be the continue --

Chris Gamaitoni

data still Do bent relative bit? of where at increased curve is too a too any a can to other little of we cost point sense for you start are usage And the impact early? collection, or it AI opportunities your a

Dennis Gilmore

we're us utilizing for in data and It's definitely but it business to efficient titled more make our rendering aggressively to the more databases early, moving expand our AI decision. dynamic

continue right now. and start So on be impacts the going in enterprise very, focused I to 'XX very and going to those across to to think we're see we're innovative the efforts 'XX,

Chris Gamaitoni

while is And of point? lot one comp year-over-year sort information lot is of still Obviously below a share. refinance to one. the at last we're other down a this the just is What business percentage easier year, last centralized

Dennis Gilmore

it. get We it's the a not for majority. majority Chris. that can would you say of It's offline, I

it's don't you. just but lender talking can about you're but If it, we half our business, in that centralized of less for have I get than hand, that

Operator

you. Thank

ahead. is Our go Bose KBW. George next coming of question Please from

Bose George

So income. investment first, just on the

the in of So between residential terms there what's versus breakout the commercial escrow?

Mark Seaton

Bose, talking about are investment income? you

Bose George

right. Yes, for investment income,

Mark Seaton

escrow we Well, from we get it's it by look difficult business, earnings income more deposits fixed don't an really to when break But income, track and investment by track escrow we balances one escrow do the it's because that of of it's come out, at bank. commercial. our commercial, is just percentage the and XX% our about what we things balances on from of balances

are investment than more that's we right, is portfolio, account escrow of about escrow or there from our XX% but our get general commercial. Now income balances balances just

Bose George

actually, for And of going going use back we should just then XX% to number rate, the forward, so tax XXXX the is onwards?

Mark Seaton

think I our Yes, rate. normalized tax still that's

years, look get quarter. well, tax we've seem disclosed couple last of what $X.X because Now, normalized benefit of to when over we've this million our you as got been we in telling benefits. below certainly We rate, the

rate. So I is think a XX% normalized

the but expect the discrete I rate I to than some that, think XXXX, XX% be cause I number. get mean, benefits that would on would we would right normalized more basis, lower in that is a

Bose George

probably used modeling, for 'XX? something just slightly lower But for

Mark Seaton

be more I on discrete that basis think to it benefits, expect few XX% do XX%. normalized or a XXXX we yes. for XX% a get Bose, so, could because just but after

Bose George

in some look just in actually was in like offset just personnel. it there there? Is and the some then there And the noise income segment, investment a loss corporate

Mark Seaton

our that's plan. deferred Yes, really compensation

quarter fourth equity was so saw markets really we off. the fell And the what in

S&P have XX%. we the and think up I

when in completely personnel we decline thing that, decline our we'll see have costs, January. our offsetting when in the investment a see it and we'll has and as so in a will see And income, market the same rebounds

that. shouldn't but move be two those affected by So pre-tax our lockstep, earnings should lien

Operator

you. Thank

Partners. coming Geoffrey & Dunn go ahead. from of is Our Dowling Please question next

Geoffrey Dunn

deals, market. over still Understanding that revisit size have last the the can it deal there's been to pretty wanted large you in inflation like years. the lumpiness consistent looks commercial I several

expectation So could terms that's like potentially just I checked continue the of all grow? look being average 'XX, on out it in 'XX Dennis, seem you your curious, inflation and pricing at to deal profile and what's doesn't as fee was

Dennis Gilmore

a it think can, by and think again be but again lot 'XX. that's grow the to of the I going driven of it could I deal, in size

Geoffrey Dunn

mean, I of of quarter but if is you fourth just I several at years, understand last any the look effective, trend seems a strength. general

it out to that you growth. So seem that would that unless are is probably at change at to something jumping we look continuing

Dennis Gilmore

correct. that's think I

I think it will continue to grow.

Geoffrey Dunn

Mark, then, you as do Was at billion. your the at $X.X last $X.X your the well And balances have billion with was that escrow quarter? XXXX, as comparable year-end,

Mark Seaton

At bit year-end, is year-end. different which little average a what balances, have in than

it billion At we I but have is on was file an in our that's the billion $X.X end we average $X.X for QX, K XXXX the average. the think easiest balances basis next when there. thing year, the can week was our XXXX XXXX. On of

Our were escrow year-end at billion. $X.X balances

Geoffrey Dunn

you then question, you of benefit have purchase the volume. income, from have last And headwind investment obviously

together, Looking and margin at both basis? outdo an 'XX QX can 'XX, put you EPS that all on QX

Mark Seaton

'XX? QX

Geoffrey Dunn

year-over-year, purchase headwinds, while. really I'm which given sorry, for QX we haven't a 'XX, just seen

Mark Seaton

me start Let there...

Geoffrey Dunn

the I'm for shape curious you. first up how quarter might

Dennis Gilmore

and for headwind. in for lot that we'll right basis the year strength, the we're also headwinds on the We've think more We've strength business now. we attacking in commercial accordingly the issues will there in mean, innovative investment answer year sized whole right I now. think continued to start of purchase the income, a and be get I'll market.

think of to And Mark to overall, that Geoff, we comment company. hit the revenue wants on still but our for be So margins XX the pre-tax will think there XX we'll quarter? if we long-term pressure

Mark Seaton

comments QX in investment by the terms increased an QX again, decline 'XX in versus offset income. seeing of refi, Similar purchase, I decline in mean, 'XX. we're

think very, similar we QX a should QX very to quarter I of of 'XX. see 'XX

Operator

Thank you.

question John Campbell ahead. Our next coming Please is of from go Stephens.

John Campbell

now. details of all pretty Mark, the right report. that's accounting On in appreciate the noisy back change, the I obviously the

that EPS I on continue very in that's think just the just out this have number just But all a also headlines guys guess, like I done helpful. you've curious, number considered then of it reporting you GAAP report? adjusted back just Are you an and on to call to guys out?

Mark Seaton

our I think do, GAAP John, talking about of the release, we to you in the about was, headline in we Well, addition that’s what $X.XX. $X.XX of to tried doing Are was EPS talked in headline that? something our

John Campbell

just was maybe I I Yes, the mean, have swing business your it and alternative EPS an noisy. the an just mean actual what all number we where provide report there, will work. mean, core little a do out I It's consensus apples-to-apples. XX% can between you GAAP and there right?

Mark Seaton

into We can that take consideration, John.

GAAP take there the our and like felt We but fourth unfortunately it and we'll your we number, but so in big in GAAP wasn't I was we're difference additional of consideration. to going to because these volatility this significant didn't in make quarter. our thought earnings think have adjusted QX, because this, it really affect had disclosures, a QX, into QX,

Operator

you. Thank

Hughes next SunTrust question Our coming go is Please Humphrey. Robinson ahead. of from Mark

Mark Hughes

was much different that normal write-offs the balances, uncollectible quarter? this mentioned had you of than Mark,

Mark Seaton

I receivable, we a we -- say million didn't item just so we basically had that would was write-off I a can of feel $X mentioned. collect, like as

In terms $X.X also of severance one-time million, quarter, tax this of we benefits I had million. mentioned the but items $X of other

of quarter. everything out of did yes, the that have But we receivable. washed So kind for unusual write-off the

Operator

We'd to thank for participation question-and-answer brings the our Thank end today. their everyone session. of us This to you. like

disconnect time, lines day. a at wonderful You this may and your have

First American Financial (FAF) 14 Feb 192018 Q4 Earnings call transcript