FAF - Earnings call transcript Q1 2019 | First American Financial Corporation

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Operator

Greetings and welcome to the First American Corporation First 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 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 enter the conference ID number 136-89517. the to turn now will call Mr. over I Relations an introductory Barberio, Vice make Investor President, Craig statement. to go Please ahead.

Craig Barberio

Good morning, for the everyone, conference first earnings and quarter welcome to of XXXX. First American's call

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

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

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

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

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

Dennis Gilmore

with will of then Thanks for review morning discuss I remainder for our begin our a outlook XXXX. the Good first Craig. and you results our thank of call. quarter and joining

of gains in market due despite year. the the performed increase were the $X.XX securities. well half quarter or in First last that the excluding fair ongoing The quarter realized equity in $X.XX share an second in housing challenges earnings investment company net began the to first value of per

fell refinance title purchase X% last income effective commercial revenues In declined title X%, XX% continued declined growth segment investment segment our revenues expense compared revenues and drove our our earnings and declined revenues our and in management strong to margins. While year.

margin the and losses. of investment we delivered However XX.X% pre-tax of net realized impact a excluding still gains

margin our to pre-tax In with and casualty Our segment, our business property business strong XX% was quarter last high our X.X% and year. home claim performed losses. continue Specialty compared experience warranty Insurance this

the recent However X% investment order improve are the we're season pre-tax economic efforts the encouraged improvement headwind to pause our in in decline ratio modestly we've refinance XXXX. segment's XX% We're given We P&C of past to traction. be to about the gains. quarters. XX% encouraged optimistic backdrop orders and will business the overall spring the the that by This margin we've a market beginning over more in Entering selling and only our purchase net become with experienced down which XX% housing of declined is open the realized a excluding up with anticipated three purchase mortgage XX.X% now gain trend orders market rates. loss over an order trend April's modest more

expect to we In year-over-year two investment for next and business income see strong the expect addition, commercial in deliver our another growth will we year our quarters.

our will a we more the over As through for review development improvement financial long-term innovative progresses, for investing call XXXX the customers. our maintain Mark for on while to results. our focus also will I solutions turn margin detailed now of the

Mark Seaton

per which XX% income average per as to direct of years. rates million in income primarily of quarter relative with down residential certain in $XXX number from for businesses the short-term $X,XXX the contractual decrease balances in of was XX.X% reserve revenue growth agent down year. escrow and estimates cash XX%. $XXX average compared The The with partially X%. title order. short-term loss prior down Higher in compared deposits, prior average no of transactions of our bank due loss in unchanged decline netting X% of spilt higher order the revenues X%. and up company's profile real premium sales. lender estate change The title decline cost lower direct revenue an title decrease reflects increased you of a with to first services cost revenues to for centralized were This cash, debt the securities purchase our cash order year. and transactions the segment lag one policy compensation were and services margin increased due an fee down from current was XX% claims $XX million, increase values. insurance portfolio the offset to Agent held for title for to by title and increased related and higher in for costs year. million transactions average we exchange drove the in per premiums revenue X.X% million rising due The X% and X.X% the billion with rate revenues services the prior balances. fees million compared order agent investment average year. insurance prior the Pre-tax sales of direct and of the $X.X The ultimate escrow in that reflects incentive recorded resulted from X% with rate in segment gross quarter million premiums resulted insurance policy change operating a approximately The Investment year policy closed last company's orders for and the title production was Thank or expense. from XX.X% while increase In primarily for Other higher Dennis. XX% as down revenue quarter X% well other per revenue provision The Personnel netting $XX as rate year. within expenses commercial losses average and The was and commercial was the in premiums. customers million the are previously current the other interest salary fees cost $XXX year. operating XX. was on was Information to was of totaled as increase The lower interest X.X% were year. decline the and mentioned. business Pre-tax benefit where from in and $XXX driven were the XXXX by and segment lower $XXX last last relative escrow compared premiums income last that March

in higher gains last losses pre-tax realized XX.X% was investment to Net deferred corporate lower Excluding last tax margin than down and expenses year. XXst, $XX compared due with our other the XX% income with million notes this accounts. primarily our were of XX.X% to quarter due X% March payable balance of down which notes sheet normalized $XXX The as the cash facility, obligations. to related on net of credit and Cash compensation million in operations of XXXX provided year with segment impact on plan. senior compared the stock million and tax effective $XXX capital excess and our million units. was X.X% $XX million trustee and associated of notes, restricted quarter quarter tax $XXX investment consists rate of totaled rate million benefit to the million of vesting of of $X balances in our changes for contracts due by from first million was working the Notes $XX $XX

the XX was of March debt questions. capital the to to operator turn to like XX.X%. over as to ratio back Our would your now take I call

Operator

the Instructions] first [Operator your DeVries of question our Please line with with comes proceed Mark question. from Barclays.

Mark DeVries

the your year-over-year, been order so And through transactions you're there's closed shift fee also on profile, an been trends seeing in also update on look average Was on a you're like you're mix, on orders business have the well get it hoping offset towards what open getting? business? mi the April there down you larger to an are commercial does kind seeing what in of seeing commercial

Mark Seaton

business start first that's I'll the so XXXX. days terms April XX good far order of that, count with accounts first to so of on XX in April were XX% and Mark, the is in for in days the open commercial This morning. relative order basis Mark. down

seeing talked the we're we've higher in seeing we're deals. and of past, profile a fee the decline, about but a larger as is a So big mix driver

driving in a higher So fee though see revenue really even commercial quality was X% terms the on of did profile. first We that's deals mix, higher down quarter. a

Mark DeVries

like what and about flattish down [indiscernible] revenues for the to saw, it on commercial. quarter? so what this or both seeing profile, be that given the kind kind you're really the expect marginally or average of fee it Would think you you're Okay, of orders to we sharing

Dennis Gilmore

Yes, this is Dennis.

like digits. to be slightly think overall we're pressure it will strong going little of going have see to down three two court an year. years We think we quarter. a guided the down I or kind we Probably is martial But last us. as revenue [ph] so think [indiscernible] for top year very probably single

Mark DeVries

and did expenses than we of were Anything Okay, modelling expenses to were worse then great much kind that for better lower? there manage you out calling the quarters.

Mark Seaton

Well there's quarter. things, the really that I'd unusual is, two nothing say. there was in One happened

the we here aggressive So call. we XXXX of end as so far in actually cost unusual and in quarter. and pretty first we last benefits expense structure we the item talked the management on the line realized at any benefits on didn't get mean about so I were those

Dennis Gilmore

what beginning of optimistic we were I'd we and expense a a I'll were just now Mark ago. in quarter the going than the months few XXXX Yes so we of We're on only add, ratios pessimistic question. in said, were little I'm get sure we little the more than market on fourth were now, more aggressive the purchase XXXX, our really

Mark DeVries

Okay, Thank got it. you.

Operator

Thank you.

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

Mackenzie Aron

accounting way you just question kind give drag, of corporate there the cost? update personnel an just can segment, in a us the maybe about to the net think given the on changes First

Mark Seaton

we're income deferred the to corporate income, in rising think deferred to at plans difficulty] segment a our $XX plan volatility is look going but be which offset markets the it, of have that million [technical because or too. equity the investment because rising rise the way quite segment to corporate we loss our and Well, now. personnel by there been that's comp There lever of going we about about has very just the [ph] be is cost at compensation time investment some going consistent pre-tax to quarter

two there's pre-tax going loss So items, forward in be they're zero volatility to net terms segment. much in and $XX the expect close in we but to million to change lines don't those our going going of corporate

Mackenzie Aron

and the on income. that's Okay, then helpful investment

year-over-year the notable that expect I think comment you there on to June, challenging? the Xth a was continue comp years. Is more for that two make anything growth there that made next XXXX would

Mark Seaton

deposits the that The it from and in is rate our very feel thing rised $XX challenging was is went that, going investment million so it like hold, more about one much, our the run benefits so. any that good assuming the or every and million rise time year. make is exchange from be $X our assumes would which from on the so, didn't look not a at a we title when you sequentially our segment last to fed raise got bank, and there is [ph] investment fed income income business escrow fed times that XXXX we increases, four more

the we're and real our will are that, higher, and growth. like change it is lap we of Again income because also improvement think terms to that fed that we'll [indiscernible] investment change to feel assumes in get balances rates year-over-year the and we of QX those once we have from So of just fed is today. kind no assumes but QX going in QX sort our year-over-year it out there in where doesn't

Mackenzie Aron

Okay, great. Thanks.

Operator

Thank you.

Piper the next question. Deleeuw of Please Our Jaffray. comes question from proceed Jason line your with with

Jason Deleeuw

environment. tough Congrats on during solid the volume the results

Dennis Gilmore

Thank you.

Jason Deleeuw

hold you on you to thinking improve a where last. Are improvement? you hire have little or going I we're able up down volume guess expense to least now be here? to volume staffed structure your What the Are are And to at for being need be? the that you kind bit seeing of

Dennis Gilmore

down season sign order staffed spring good April months we're and into ago for going so just volume appropriate far from that's order last few X% were so We're mentioned our we counts you what the the like now, optimistic more quarters. seen a approach, definitely in so the over we've than few volume a

temps months summer the Specifically we it a headcount and amount also regarding up add back spring we'll seasonal and as and go limited we'll into overtime.

So going to closely our watch we're next expenses the months. real going over few

Jason Deleeuw

margin the first it expect the I was you the is, can to And in year, here a other it's the that? [indiscernible] in that where get the OpEx year-over-year. margin year-over-year, the that for pre-tax million of expansion being improving XXX run a it. kind the of is and key got just and $XX that margins should also bps focus the trying expansion just I'm sense, title then bit improvement and add is Got the and they think how we sustainable? cost quarter the rest segment so think we volumes rate just with in. the new Is of than declined

Dennis Gilmore

take start OpEx. I'll margin questions. the the separate Let's the Mark then and can with expansion

to our margin because controls. off continue year. try do expansion the year I [indiscernible] strong know just margin of little we're started stronger We think to than few over we a expense to grown Regarding the that. we've anticipated great going every Obviously last years you

So the headwind we'll good said have We got view market sitting we think think strong originally of here differently. income. again, We than a less more performance thought. a now, will purchase optimistic be a investment we've commercial purchase on that market or the

positive. all So

of now of the target that and XX% at to range good still think be where right are will XX% obviously long-term Our target. we upper we

Mark Seaton

terms the Jason OpEx. Yes, of in

segment there has is. expenses OpEx been the order significantly of operating answer short just XX% our variable. and counts about the because in think is down I down The our are title

either fall refi the the or see going to see driver. we'll We'll conversely that's see and We to OpEx the big continue and purchase savings side. they on So rise. continue rise, orders be to that

So with trend [indiscernible] order temps.

Jason Deleeuw

one that quick are lot year-over-year. and a per factors it that? driving refinance up was What order last Got one. The revenue the

Mark Seaton

There's it. a driving couple factors

a hasn't so over The really increase it ARPU we refi quarter. ARPU in XX% our and changed big refi this the and but up in not years. and was in on last that saw typically the first seen one, ARPU, commercial year-over-year We've side purchase

And So acquisition year. one thing we no that did with an associated we revenue that last orders. related escrow acquisition is TCM with called get

of acquisition. off little refi distorts about So a it so bit, in X% that XX% ARPU this the related the increase up was that to

we our So up and is XX% raised most our we're it was a lender our There Most because rates have business higher seeing. still so which we higher is than ARPU liability is core that raised that's rates all refi in what economically about year-over-year driven. that centralized because of little of because XX% centralized just bit but transactions of in refi business. of

Jason Deleeuw

thank Great, you.

Operator

you. Thank

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

Carter Trent

taking revenue unusual segment forward? what for year-over-year was the Carter in business, there. your the John. and decline other you segment is the Can information required was growth This the going title The for within there. reason for talk What expectations about that place

Mark Seaton

things couple a there's have other, and info that happened. So

business to that of was in and some of down the title the So fact changed netted business with used and business info revenue show we revenue million contracts appraisal the customers million certain $X with because of on the in and and especially annualized the was we've it other to cost now appraisal. that our our growth in the used $XX of we've we

is million million that about of off $X because default declines to and operations. related million million expenses. related our seeing centralized lender and half off $XX we've netted still our our $XX related $X $XX is then we're So the international is activity business, million And about revenue in the to

decline. really what's that's the So driving

Dennis Gilmore

the regards with little comps are second to growth, our on half. think getting And I easier

declines half the not of quarter first I So towards we in the last here we saw year. the the will see think

Carter Trent

count guys guys repos, thanks the And helpful. sequentially, did the it on looks [indiscernible] share share like that's declined Okay, you repurchase quarter?

Mark Seaton

and We of bought in $X back so week share fourth quarter, In we've the the share shares count why shares. the just did bought January, worth down was we repurchase so or a sequentially. in that's million back XXX,XXX January first

back the it but was bought shares really few we negligible So during quarter. a

Carter Trent

guys. Thanks perfect. Okay,

Operator

Thank you.

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

Mark Hughes

decline activity about interest there. early rates, sustainable this signs get refi stay a is you. you're seeing rush assuming In order life activity there question of is pent interest and demand and perhaps Thank rates more your I've of up you an so clearly experience, with kind relatively low. or more in

Dennis Gilmore

so refinance Well this a It's the day Dennis. basis orders about per We in and nice is probably quarter ended uptick now running more X,XXX sustainable. on average unexpected orders well uptick actually. and day X,XXX around

directly so but And will pent, with continue trend associated I to really that rates. it's think

orders range, I it's of of think going for driver and but rates So less be that for unexpected those so ranges an caution will title current revenue the represents those good it revenue but if revenue, I the than the us. a pick in It's continue, not XX% only company, counts would growth. up stay to big

Mark Hughes

commercial then modify single wonder too little low might and And single, not the finer mid a point, said you care single. to I you that to digits. on if single, bit, high put down

Dennis Gilmore

think stay digits had was year. last an business. I I've great now, record and said late really XXXX been right mid-single commercial consistent it's a our and been for around overall I it we'll forecasting We since with like what

slightly have it will commercial are strong all good remain us but another that for very XXXX, in very do I going be I in will saw think what we indicators year, to from we're down think XXXX.

Mark Hughes

Thank you.

Operator

you. Thank

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

Bose George

over just rate of in and first we first and and fourth go go course quarter in $XX expectation, why good build back of the use that kind run that year. the didn't is annualized of sort million the that and the to curios Just the wanted up also to was so should it after interest quarter income,

Mark Seaton

$XX the run If the and use. is all assumes rates were balances to the again stay same. fed a still million, of first rate good that raise Well to that

think now time is, every to annualized more business of like we and use income a the commercial overweight that the now to the have commercial that really million the fed our investment because $XX we've So raised of about more this the and is deposits things we one of stronger relative of did lot benchmark had commercial it's business. balances are million business. $XX because we

mentioned a again just still I then like And but expect before incremental income looking question, million of So just your rate, the fed from assumes we over feel run to really on ahead, is as in pause. Bose. where flat commercial investment answer it today. quarters is in don't $XX couple been we much Yes the good growth because is next that is

$XX expectations. So of I our think million is kind

Bose George

Just the why just rate, is in this was in income the December. sort I investment did that, fed year. that, the then benefit of terms curios the of that increase

Mark Seaton

balances because biggest down, the quarter is strong just at Yes were quarter were balances and commercial so fourth reason was high the point. real that

know you in quarter. less balances in so lot a QX get and As the were less activity we transaction first

it's function of seasonally were in low balances that fact So a QX. really the

Bose George

the to pick so rates extent stable? benefit balances with quarters Okay, see in up. even We subsequent could that

Mark Seaton

Yes.

Bose George

out then that's regulatory. actually and the regulatory Is to that you're seeing there just anything to there thanks Okay, update noting. worth switching in just

Mark Seaton

markets now. Not calm pretty right really, the

Bose George

Thanks. great. Okay,

Operator

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

Geoffrey Dunn

double check. want just just to I Dennis

in per refi day said $X,XXX You April? was

Dennis Gilmore

Correct.

Geoffrey Dunn

And the X% probably purchases to $X,XXX. with down $X,XXX somewhere in

Dennis Gilmore

yes. Correct,

Geoffrey Dunn

can more staffing now? quarter of the you be specific took already up the of amount terms in if on fourth you're headcount, then And Okay. and in action

Mark Seaton

our fourth in headcount the On the fourth segment was quarter, in the people quarter. XXX down title

Dennis Gilmore

how very year. more specifically now. then the into the the we're like cautiously coming year. at on on of And used purchase were it right were beginning Again we We headcounts I've aggressive optimistic Geoff, thinking than about the we're term

now. using using staffing So we're where also seasonal to, using we're cautious - we're going need full some forward, but we overtime but time and we're right we're

Geoffrey Dunn

ourselves back that if it cut maybe just you catch think what now. a trying And like about knew about had you I you up the now bit as personnel, probably means we I'm of we in then add remainder back to some you aggressively on you would knew accrual there's to think bonus going so environment through if I'm guess find add of QX, sounded expense little than - you maybe Yes, as year. for what of think the more the

Dennis Gilmore

really, not No, really. not

Geoffrey Dunn

and you we for Okay. margin about you maybe out your if curious do look mix to XXXX. income the opportunity think excluding I'm how you the you're pull benefit. last operating margins versus And question, losing at that NII look actually year-over-year way investment because at then and it If due leverage

Mark Seaton

at to expense look and losing net ratios our side the is We has referring to what expense which ground when is commercial been down, refi we you the of down, on a down. method have a look are similar months, XX because revenue, as percentage at last bit you the simply operating yes been the purchases has

come So that our that's yes, volumes down have have down lost XX have, of income. operating because offset we have been by in margins markets investment come just more margins the tough months. last and kind than But like

Dennis Gilmore

And trailing where a our trailing our XX, we think you're one is we can it, first aware at it. but quarter strong XX in in are, we're the also we're Geoff, look volatility it, any success not ratio little a happy quarter. On and of very also success ratio one because at looking have really any we're months quarter I

Geoffrey Dunn

improvement. couple offsets you in and let's Does a refi margin that take both achieve down it terms have commercial at, of purchase it to more so a than Right points commercial call of core in just and and can looking in purchase? growth kind environment stability or

Dennis Gilmore

a better margin get for the we market but we'll a If of Not purchase forward opportunity straight leverage. expect kind depends. answer, have it than we

think quarters as that going will better the on than secondarily the purchase have we sale. it for thought be of part So comps the can in and we're - fourth I think be some market purchase easier to And last lot what will third be incrementally us quarter. we

still be going would be will to I is it we it's thought a beginning to of purchase. I it the driver be clearly the main going than but better the be think But headwind, year. think think at Geoff I

Geoffrey Dunn

great. Okay, Thank you.

Dennis Gilmore

you. Thank

Operator

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

First American Financial (FAF) 25 Apr 192019 Q1 Earnings call transcript