FAF - Earnings call transcript Q2 2019 | First American Financial Corporation

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Operator

Greetings and welcome to the First American 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 the call is being recorded. XXXXXXXX. for short the or time enter conference available and investor XXX-XXX-XXXX be the a for by ID will replay company's from website and And dialing XXX-XXX-XXXX

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

Craig Barberio

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

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

do may are speak undertake Some strictly and not after the of that made to forward-looking date fact. relate statements does today forward-looking to historical forward-looking contain date forward-looking occur statements the the these only reflect current or not made. made, these the company to statements or statements circumstances that statements update of they These are as events

and in Risks set those results exist cause may uncertainties materially to from differ that these statements. forward-looking forth

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

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

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

I to turn Gilmore. now will the over call Dennis

Dennis Gilmore

And joining discuss you XXXX. And our morning. for Thank I the results. thank Good review call. for remainder our with then you, of will Craig. our second quarter outlook of begin a

quarter. this results financial outstanding delivered company The

investment $X.XX per gains. share earnings quarter excluding share, or Second net $X.XX per realized were

or market. And healthy the strengthen growth XX.X% drive excluding substantial interest investment XX% realized pre-tax delivered in commercial refinance segment continue support gains. activity. Low title of record a market, net margin rates purchase a The to

improvements income earnings title The and were expense revenues flat. investment management our in on segment Strong drove our growth margins. and

XX%. up were revenues refinance Our

the expectations. from revenues the compared declined year, our Our down X% purchase last And recent with were commercial trends with revenues improvements X%. our line in

delivered warranty business, which driven Our frequency performance severity. lower Insurance losses, results, claim of segment and by Specialty strong had claim to due lower our home

to The decline pretax X.X% overall XX.X% a loss of margin last ratio segment from with driving compared year. in XX.X%, the a benefited

As our consumer we have previously of we security into recent completed the incident. announced, information impact investigation our

Though seriously our to keep the consumers, and take customers caused. regret investigation our incidence information identified XX only concerns the we impacted we this secure responsibility,

economy improvement lower Turning to to the continue The rates outlook. mortgage market. the and strong drive in

July's home up open strength Purchase the X% orders well in in were market for XX%, were which by We trend. are order orders half of bodes by the residential year. second driven new encouraged orders. the Refinance up

we expect strong continued our business. In commercial performance addition, from

income conditions our funds strong results reduction Although investment the Fed impact and will we of in anticipated of current half efficiencies rate second market business the to year. our deliver financial of the operations the the given expect

our I'll to more results. now Mark a financial the over for detailed of review call turn

Mark Seaton

compared X% Insurance direct the escrow orders the up reflect title closed X% relative in Thank This the and you, per increase premium Services revenue direct fees last flat with with In last and Title segment were year. of number order year. to a Dennis. increase average

per premium mix order purchase offset revenue for order average to commercial increased residential order partially The average average shift revenue lower values X%. increased due a estate revenues revenue increased refinance X%, by of per to while The direct for transactions. transactions primarily to the higher real the $X,XXX transactions in per

revenues decline X%. premiums. was with was X% premiums premiums million year. other lower are relative XX.X% company's last down operations. from The split Agent centralized compared approximately international direct recorded agent a of lender $XXX to businesses revenues down the and which on to and The quarter lag Information one totaled primarily were due agent

from and balances within XX%. investment the Insurance the our $XX Services we rates cash, company's XX. million resulted increase The income up income operating impact higher cash escrow Title and was cash average deposits, as that our rising in bank of debt drove higher segment interest Investment billion business exchange and $X.X short-term balances. Short-term held and portfolio securities and rates where in June interest XXXX

quarter. production from Personnel expense costs lower were and driven $XXX The was due by prior year. during decrease expenses to lower $XXX year. expenses. from headcount last million were office-related decline salary due down to million the the lower down Other X% operating average X% The was

title $XX years. fees escrow an for the X.X% no year of loss prior reflects current policy rate prior ultimate loss the quarter to estimates was for title The X.X% of other losses The million policy unchanged current with policy relative and or for rate claims reserve in change and provision premiums year.

the in the Title for compared compared the XX.X% was Pre-tax Insurance and $XXX last $XXX with million year. income with year. Pre-tax prior was million quarter second XX.X% Services margin segment in

the year. XX.X% margin Excluding compared of investment gains last this with net and impact pre-tax quarter XX.X% losses realized was

were expenses compared million Net segment X% corporate $XX up the in year. with last

we the Expenses information security to million incurred associated $X.X incident. the the recorded segment. are with quarter This corporate in incident related

incident, Although immaterial. related to expect additional we them we will this incur expenses to be

agreement. years. of of XX.X% of the XXXX, from million, resolution in the we new quarter $XXX XXXX. quarter rate XX% X-year April was a into than $XXX entered senior credit our $XXX by matters provided tax rate for tax million second effective primarily million normalized operations state due Cash prior up The In was unsecured to from lower the

$XXX under borrowings of totaled the facility As outstanding June million. XX

Notes as of $XX of $X $XXX totaled our on million of consists our million of $XXX $XXX sheet million credit obligations. and senior which on million notes trustee and facility XX notes other and balance notes June of contracts payable million

as Our June ratio XX XX.X%. debt-to-capital of was

now operator to over the your like the take turn call I would back to to questions.

Operator

Please… comes first Our Mark question from of Instructions] DeVries [Operator from line Barclays.

Mark DeVries

little year? -- early year, been last urgent this this obviously that guys had about think all the we the how to side? expect Mark, margins position in a up? this the in bit I good you expense helped quarter. right staff need equal, on of you half being of expenses things year we and in now Or should you the then cutting late as are pressure had the activity back thanks. Should know of refinance costs Yeah, margin

Dennis Gilmore

staffing utilize seasonal Mark, from workforce and We Yes. quarter the now our are did in headcount's year. Dennis. very half. Right actually the to we current fairly aggressively by down our activities. is this relative And our expenses aggressively to our manage overtime. our up continue X% temps second levels last utilizing And

volumes headcount significantly expect to not current quarter. our the third the increase with now we right order do in So

Mark DeVries

the any information Great. of need that Okay. issues And to here you about? issues then kind think are to with we that deal security residual there need from

Dennis Gilmore

Really the through We'll put in work highlight third what the to not buckets. have the actively -- the I actively but be because regulators. them. them very nature in law our will intent be aggressively small defending costs with -- cooperatively two happened, We'll we'll quarter, roll some to we suites headline of and

of the that So be that. tail will

Mark DeVries

Thank right. All it. got Okay, you.

Operator

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

Bose George

the on morning. Hey really year to for the wanted the talked you've year. margin XX%. about and back I historic mean range guys, XX% to half the up good for the sort follow of Actually your just outlook of

stable year, pretty mean for full of potentially expenses the the XX% you could I year? the hit the in back the half level With

Dennis Gilmore

the entered be successful five the good when really half purchase Yes. less exact the growing last now you going market know But us. our I -- headwind been the regardless you over on we outlook. give of think we focused probably is margin we've we've won't I a which years. very number. as second is And right I been And of think to for

no refinance very of surprise from a And we call we're commercial strong question forward. going little a it and there's market the we benefiting from a bit have

now we sitting XXXX. we think can here exceed margins right in last year's So

Bose George

segment rate just a Okay. good expenses And segment actually the Great. other on that for just Thanks. corporate what's of the run out -- segment? the then the

Mark Seaton

its Bose, Mark.

really at been million look volatility. historically, you not of a $XX lot when quarter. consistent a mean, I So, -- there's we've

This there. the security pushed quarter because $XX information all the we into we million, again were cost with

next between million So, quarters I $XX think, over is few assumption. good and a the million $XX somewhere

Bose George

segment, margins? the then just And the you Thanks. about of on if talk you the terms Insurance can Specialty Okay. just in there outlook

Dennis Gilmore

Yeah.

little continue business. we'll to second strong We improve quarter. think there our But from severity the a second benefit weather had were I the warranty and bit a very We home reap also. for did frequency our down there. in claims quarter

And turnaround another that do quarter difficult quarter effort. more P&C will think will Third I our business, it but typically well. with its continues be for

year good second another So, the I think, half we'll Specialty for group. the to have

Bose George

Great. Okay. Thanks.

Operator

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

Jason Deleeuw

kind on I know update Or to the the you thinking old. of thinking taking goal. Thanks potential when quarter. about would Question high-level And us the it's couple how when that of -- margin XX% the of consider your company? for work when years about would range? good you you long-term a you are on margin the could adjusting question give you that? margin that that of range. of title kind But you're and thoughts If would just pretax some XX% on

Mark Seaton

turning in last X% And talked range of question, at about XX% developed I one to XXXX we refi Jason. What XX% be. that's with kind XX% that would where a assumes X% margin say this is when market mortgage But about title. that a of for the is to Thanks we to Day first Investor year; one out mix.

commercial kind than versus for better couple income back we even are One or of higher of the thought. And we is Investor at I reasons. has the we thing been high-end level is thought were think exceeding second we operating in Now when than investment that a Day. has been

think, consider the perhaps of plays so, range And year. then year out wait the till next updating I kind we'll we'll

Jason Deleeuw

on get can help and rate investment And us you about in interest looks that. the are income. And you for Thanks Fed will a of terms thinking there the we in rates investment rate then Fed Is give What dollars? expecting going and that cuts forward? just cut. income like Okay. any

Mark Seaton

because Fed when we just the our increase. guided we've in raising risen. quarters our actually guided million right? we every time more investment have consistently $XX to that's last every several mainly million. -- So, we've really what income rate Fed balances in And for income million started rates, of because $XX initially annualized got annualized risen, has $XX So this like And gotten the the increase

Now deposits. is it's expected. is go couple to million. it's but cuts down when happens we going a our and what We say the that a is really widely manage insurance reasons. like in portfolio specifically second beat gone exactly, we feel six of quite more of One the And to hard strategic just And for we've that in is we some think our last strategy $XX which company. bank rate the can the nature which the months question Fed in the to don't much one our of fixed

from so, think I rate which rates us. floating to going And securities we've to fixed shifted help is

So, income. deposit And that we're here to somewhere now like as consisting today. are sit million the in steady if $XX million assumes Fed $XX the expecting are cuts investment today, a levels decrease where we they between our

Jason Deleeuw

It's last the commercial. very helpful. just question And Thanks. on

bit get of bit. color anything Any with just Your commercial of deals down anything those little up trends? commercial out shifted – large national kind a your little revenue Or timing was or on going was kind of the competitors share? a quarter-to-quarter. market there Is revenue

Dennis Gilmore

actually quarter as had commercial in we We good than actually very we down guided we'd better actually. a that. Yeah. we're little performing a year to the We be started and bit commercial thought

And Specifically few over the timing we third We close was actually picking to the large it regarding market up deals share will quarter, share think not into probably we're we right now. quarter. had market a – that issue. a did spill

We strong have overall, fundamentals commercial. the good very we'll So to another in year. very think half second

Jason Deleeuw

much. very Thank Okay. you

Operator

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

Mark Hughes

incremental front down that that on On durable operating drive see getting anything of that or capture maybe some expenses processing efficiencies you're it? more to that the data more are you helping may the or other

Mark Seaton

some the specifically our getting say this refi we've Mark. of its Hi, point. are automation the some on material wouldn't in on to that I We we of some – would that, business. centralized processes, say I at put benefit

not still So overall significant. when time. grow that we're our saving we early but it's the look is we – segment in and you hope title at cost it'll – But over

Dennis Gilmore

absolutely our automation And surge. I add. grow and think out over returns would helping current is we've volume And in time. it's benefits will rolled good earlier those for us I deal only central the The this group efforts with

Mark Hughes

then the Or in say would Do the in frequency you variability? quarter? the – that weather decline just made And severity think in the and difference Specialty a normal business perhaps? you there's the was underwriting

Dennis Gilmore

question. It's really above. a It's the all great of

We continue very job a do to underwriting. good in

good benefit markets. some do on job claims in management so key patterns mild the weather from we We relatively continue a very our to had of and some far

it's So all the of above.

Mark Hughes

orders? the And on I just last of the And up. orders The the then that get trajectory here comment down anyway commentary year purchase out year comparisons looking through the assume purchase how your last from July of I easier period. X% you on played are – were finally the think this at reflect kind you on – when earlier

Dennis Gilmore

now. It's question. Thanks No right Yeah. the us getting better for for question.

really season our better very we aggressively. the maybe were market. through we had line When started year think the selling the spring it would our with controlled going actually classify actually. resetting Thinking expectations I to as in the I of slightly we cost

I think is But today still economy the happening. here that's us. very for sitting strong still

opinion. move has being in I a volatility of more position X%, up but July our we really a lot homes. were new lot in into that's the Early think the of housing by driven balanced

easier. really half get so homes sign. the resale new far now. right interesting good lot a comps a right a we're What's is really July, now are which us the And our our is So in up back lot entering with up to X%

the So actually be all-in-all, purchase think the definitely headwind into second going will lesser half. a we

Mark Hughes

you. Thank

Operator

next Our from Compass question. question from Instructions] line Chris Gamaitoni comes [Operator Please with proceed the of your Point.

Matt Gaudioso

Thanks This for morning. Chris. good my Hi, taking is question. Gaudioso for Matt on

lender. centralized on one Just

some You by here? noted out the Or on refis. year-over-year commentary? you lower spike extend could Thanks. to Is of anything call revenue there

Dennis Gilmore

Yes.

which just refi business our originations, isn't centralized our -- kind well are So orders. refi lender of title businesses

also default to continues And other We including had default. businesses in decline. there

really it's just default And versus so a origination business. of our mix

Matt Gaudioso

Thanks.

Dennis Gilmore

you. Thank

Operator

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

Mackenzie Aron

Good Thanks. morning.

How you you on Just XX% about. allocation is so? think whether one year the look increased low-end thinking the at about you the of talked the there's cap now, the Can acquisition about you're next question buybacks just strategic XX% at all target debt or the capital somewhere or right the opportunity given talk situation how that to capital if it's dividend on over table. or opportunities to at about,

Mark Seaton

Sure. I'll that. start Mackenzie, with

to day of invest of returns place M&A. is we'll First And point shares. extent long. low-end that debt all the our we we we organic can't build this through our to end and at XX%. about will help the invest either we as comfortable we all target can can a we're the be cycle. business, in shareholders core our we And talk around think dividends you projects at range of At that that in through trying occasionally which to adequate cap I day, or much the of good that XX% business through as are that the moat buyback M&A, or repay do for if And organically our to to

is The really years important that's probably longer. it very been five us. dividend raising We've aggressively the to last really or something even since

frequently, but us. healthy dividend. occasionally. not buyback occasionally, stocks So pay a we It's to really We want important to

But And we of to that's in like based where so is kind those debt cap where going are on right our the are we process the forward. thought -- cycle. now it the

Dennis Gilmore

we're to title. agencies acquire help And half It's companies everybody title core, We're on been our of healthy in acquisitions right just looking consistent. pretty add the information got looking quiet We're a so deal buy But we're year looking is key actually title little And strategy of pretty investments. at minority complementary evaluating to I'd is us. first the and the we've very now. markets. to A our either to and outside deals clear of only pipeline if for relatively but data automation. front. And

the So long And deployment can as disciplined returns. get as pipeline. on always, we be good as we'll our

Mackenzie Aron

you. Thank Great.

Mark Seaton

Thank you.

Operator

Micenko the from comes question your of question. line SIG. next proceed Please Our Jack from with

Soham Bhonsle

guys. Hey, morning. for Bhonsle good on Jack is Soham morning actually This this

there first showed given question this slow you growth going your quarter order. per my The refi in So a some revenue the confidence was also seems bit mix. But average just on comments, little around volumes commercial to forward.

forward? sort are refi going So calling better of that to dynamic some for commercial you offset How should about maybe we volumes that impact? mix of think

Mark Seaton

you're of including going kind mix versus is doing well. if because business purchase. close title We're quarter the our fourth just per simply refi of year at usually per we put the lines, refis expect it typically that's then revenue on next rises, next like because to all some a Well, of fourth quarter. Obviously, segment's it commercial quarter decline and orders our looking pressure in to quarter the refi And is to the average order more order. going refi strong in

could -- rebound quarter. in think it's so And it the fourth we

And look prices it last individual we up We don't at X% profile at year, continued out the way don't fee to -- of and at by it the look the kind consolidated mainly fee was and refi commercial average profile. versus We quarter lines. purchase risen. have look manage this our break just purchase business housing we business, because really and it

was line so with in And I think our that expectations.

profile year, But We've of prices I bit. typically is housing XX% a up been XX% fee -- is rising. little was the which it us. think big has again profile last because really than versus refinance benefit for Our are up fee just refi more to rates a raise

deals were just to similar in flat was what the doing second because last the that profile fee of the were we're they commercial the finally, quarter year. And size

basis. we how a on at fractured more that's it of So look

Soham Bhonsle

of per piggybacking mean, revenue average of off order. I per just longer-term guess, commercial that -- sort fee I

single-digit of you or where Sort that do sort of do you mid where low of see that sort the trend single-digits, is going? that in range see

Mark Seaton

you talking when purchase You're altogether? and lump commercial about refi and

Soham Bhonsle

side, the sorry. Just commercial

Mark Seaton

I'm sorry.

the a strong commercial. really of all commercial really deals. in on the depends size Just We're still It environment.

Our years consistently probably seven in fee six, profile has commercial up now. for been

And probably single-digits we decreasing. expect. If somewhat would been what say is I low so already it's

Soham Bhonsle

Okay. you. Thank

Mark Seaton

you. Thank

Operator

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

Carter Trent

out is come there call Hi. Carter This question or on guys. market. is more volume Is standpoint purchase for the Thanks One to a pretty broad-based? John. quick anything geographical on the from

Dennis Gilmore

question. Thanks now. probably would stronger I right a still a say, central for definitely west, it's The looking trailing; again, the -- is the second for half. pretty the little going we're into headwinds less But

lot I a easier. think comps get our

think perspective broad-based, has the a I probably pressure. most got So the pretty probably west from modeling but still

Carter Trent

little And then decision-making Is you. Thank you more you prefer allocation. if color buyback on capital on dividend And why a Yeah. provide there the the a reason paying can specific real that? over stock? quick process behind the

Mark Seaton

we're good the we I cash It's and we've strong generate we really in investment opportunities have. have something dividend, attractive flow we pay mean, It's we our to. I discipline the more Well, want to something think cash flow a done. business. have opportunities. we of is then reality that's company a a But dividend. lot It's why generating a And

our company, back return a for want shareholders As consistently. we capital to

And continue dividend, so to method and we're primary our something do. going that's is to

primarily market, in basis. still regular on return -- we -- we the dividends, we a quarterly those opportunities. dislocations and shares looking to we're and on when every always often there's consistent think capital focused because But typically want for we're repurchase I

Carter Trent

helpful. Thanks Got it. That's guys.

Mark Seaton

you. Thank

Operator

today. website to We'd This concludes listeners you today's XXX-XXX-XXXX concludes the for enter available XXX-XXX-XXXX replay be and we all your or XXXXXXXX. by like have for company the That time on questions dialing company's this like thank that call. conference conference will That's call. today's or remind ID to morning's would The call for the participation.

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First American Financial (FAF) 25 Jul 192019 Q2 Earnings call transcript