FAF - Earnings call transcript Q3 2020 | First American Financial Corporation

Due to licensing restrictions, you must log in to view earnings call transcripts.

Operator

Greetings, and welcome to the First American Financial Corporation's 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 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 13711297.

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

Craig Barberio

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

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

they to the today only facts. update occur forward-looking set those uncertainties current to forward-looking These does made. statements events statements speak to Some results to reflect made forward-looking from and that after statements forth or may or circumstances in of the Risks and do exist that cause materially historical the statements that of these are may the the not undertake forward-looking date as contain date differ company statements not made relate strictly forward-looking 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 of certain non-GAAP the to company efficiency and to company's we due insight competitors. earlier measures to relative the contains believe the and performance additional relative operational Our provide periods that

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

Dennis Gilmore

I'll per on company's were in third review detail outlook delivered casualty start position. Good will and taking morning and our the a capital earnings up Mark share discuss discuss Revenues our are in call. strong XXXX. our the of quarter you and our with $X.XX. financial perspective with our thank business provide on an billion, results, we remainder quarter. and greater actions and update joining our for XX% of third of results $X.X for provide property the We earnings

XX%. segment in hit our Our a Title pretax margin record

revenues XX% kept limited per quarter, ratio, by also achieving the the our up were efficiency, a demand driving file. houses given our inventory focus has on Purchase fee we been are closed XX% for of and robust. mortgage volumes rates and sale, Loan success third of in higher ahead target. well As increased, price substantial growth appreciation cost order driven XX%

Our is continue purchase third open quarter, third into the up by orders, orders X,XXX closed quarter in continues elevated the heading which driven quarter, pipeline in in and in in trend to this strong revenues support the day Refinance quarter. as fourth strong XX% October. up growth rates were Low open averaging XX% third orders. the were were per

orders So day. October, we X,XXX are in far per opening

with XX% business commercial The quarter Our varying class. recovery of in the from market quarter. improvements improving continues decline commercial its third declined asset XX%, by revenues the the overall second

started to of quarter return This see a large we transactions.

improved are encouraged third Commercial the X% weeks orders are six to We that our with orders open over quarter, throughout last only orders year. flat the last year-over-year. down

Insurance Specialty to Turning our segment.

We property sell business. the initiated casualty have to process and a

recent financial on we and returns. focus higher business business our well on results to expected core with capital based over our the decided this performed have While areas years, has to redeploy

business pressure trades, growth, management retention in effective quarter. increase rates warranty the the claim throughout experience business. improved in particularly part strong pandemic. this business home appliance the to and the believe in we we offset frequency, and cost pricing The adjusting are an are policy funding of making Our attributable delivered Due to expense to in our to in continues trend, and which the process changes

performance this to continue year. home the expect generate We to margin warranty business strong

we we low we continue and to expect the activity. will drive to strong And refinance are quarter rates as year, volumes the elevated into refinance well and into year. purchase next indicated tailwinds Going optimistic fourth that demographic remain throughout have

meet our record While anticipate the increases commercial we optimism quarter vast continues do will work business our the improving not volumes elevated workforce to pipeline majority performance. forward, year's of we Throughout remotely. and experienced last going order our the third

demonstrated the the few strength made flexibility over data, has digital And has the the the business. innovation automation of and strategy like major greatly and title our leadership to while to slowed to secure I'd has performance markets. economy, investments Validating position Our and our of it the digital Mark. accelerated we've sectors our years pandemic turn the in now call past over closings. our in

Mark Seaton

diluted This million third or we diluted gains on $X.XX investment quarter, share. and sale $X.XX totaling realized net share or Thank earned $XX for $XX million per diluted impairment per share. assets you, the includes of In held per Dennis. $X.XX

of $XXX up higher products contributed The year. to order XX.X% to that Excluding prior the average premium title isn't decline split items, XX% year orders due as in the per level, X%. including closed growth lower factors Agent XX% premiums, direct recorded refinance well for the orders, at the we premiums. which higher revenues by average are we for of per were offset see to average Title revenue revenue $X,XXX purchase decreased approximately order X% lag revenue on one this This quarter, order. of this lagged a transactions with as revenue which the Insurance of number partially Services transactions, for relative to up growth, for the to led the reflects of a agent escrow mix and transactions The At in number were results. per commercial Docutech increased included transactions. The other segment in company's mortgage shift average of acquisition prior title transactions, XX% refinance continue direct earned with which year. compared and premiums, last a the quarter per premium per these Information two product In originations order to in A million, a to demand direct share. compared year. in a XX% agent which large up $X.XX increase number our last and fees the increased was information declined XX%. totaled XX% and growth

primarily was expenses benefited the primarily quarter, seen Other cash to or Canada. were claims higher to partially as claims. employee program lower XX% compensation recent the X% $XXX Additionally, offset increase million to higher Services segment from expense, title the and was continued relative services claims relative loss costs favorable we Incurred provision of balances. Claims year. costs acquisitions $XX costs growth a the $XXX higher million result production-related be down policy in in The premiums have The prior year. losses short-term from up an from in incentive provided XXXX. primarily up were $XX and due in fees, title rates was decline expectations. the to year. X.X% Personnel expense XX% totaled uptick and not pandemic-related of temporary a title rate our the income government was we Insurance to due XX%, Investment for in to and increase This the the the third decline by To-date and of increase million order support million experience salary prior from in X.X% on a and due other result as last provision operating escrow Title within volume. of impact to interest benefit an investment portfolio expense. million a $XX

up amortization for $XXX The Title to compared year. experience. quarter environment maintain and have and last million intangibles same was depreciation Our will to claims was record million million compared in until, $X the more compared segment $XXX intent expense period in rate margin how the is was XX% loss prior related affect Services year, a in $XX acquisitions. with our year. primarily, third current or due Pre-tax X% to quarter with a last XX.X% we higher visibility the income XX.X% with into million Insurance the of Pre-tax the the recent amortization third

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

to property we casualty our sell a Dennis insurance and business. have As mentioned, plan initiated

XX, million quarter the million. business For which notes $XX.X over normalized strengthening Notes back this transaction, due the assets held to which and casualty was obligations. million our million May. to recorded million nine $X.X Specialty of of Insurance $XX with notes, higher an property is quarter in payable reserve The balance line effective expense of $X first last and completed. impairment recorded recorded consists the $XXX first, in the with months the totaled contracts notes to million compared the a largely loss sheet call casualty in million up the to rate will items: I pre-tax take property half the amount our recorded tax $X associated notes two on tax of second business your over of like and continue turn other as and sale The Net for trustee on in billion results for which September would $XXX million This just $XX year, first with of corporate XXXX. closed was a million $XX.X questions. until $X in XXXX, our and of a XX.X% rate. and now of sale to segment of were of senior our interest includes operator expenses senior be segment

Operator

you. Thank

a conduction session. question-and-answer Thank be [Operator now Instructions] will We you.

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

John Campbell

morning. Hey, guys. Good

Dennis Gilmore

morning. Good

John Campbell

couple the P&C I clarify things of a just to on want business.

that's are just So right? warranty guess not just home I -- you P&C selling guys and

Mark Seaton

That is correct, yes.

John Campbell

could breakdown. last Okay. was the P&C you nine earnings But And maybe Mark, thanks then months? the for provide over if the revenue what

Mark Seaton

Yes John.

$XXX million it's year-to-date So revenue. in

John Campbell

think segment. I that going said And hold in the you Okay. to specialty you're also

ops is that right? not You're discontinued moving to that

Mark Seaton

in just at it material so move We to going enough been. has Insurance that discontinued to always it's -- to Yes. looked be it's not Specialty it it's recorded ops just just and like

we consummate a So transaction.

Dennis Gilmore

completed in additional you give specialty to the results get mean, of first half stay and just next I'll the year. John looking transaction detail. the we're segment will the I some by Yes.

that So update give a further we'll at point.

John Campbell

highlighted is I the at conclusion? more? is people claims pandemic it just pandemic? higher home? about of Okay. And you then of trends. on just the kind did and How kind home to the the you Is wear Or maybe And home that it guys on more influencing what warranty tear get guys guess

Dennis Gilmore

second both if the and real the within quarter our mentioned And third consumer we is interest It's a quarter toughest is what I seasonally are of you really I'm direct kind quarter as well. our business quarter. sales mistaken not doing estate our and the worst John channels. It's always really and know think Exactly. strong

logical uptick plumbing claims. the our way back surprise and more about stresses can't clients' just to putting we the system. home But a housing pandemic, So claims quarter of they're on no relate And saw there. our are straight-line you an inside but trade, we more people our the appliance it's draw our

right that very to going all in adjustments we'll fourth a price some do business have of make well. in at XXXX. are business. returns a our we're doing our appropriate think take policies for there But is that look So that all to and We quarter sure some strong

John Campbell

Okay. business. If in Any helpful. capital kind that? more rough kind of about maybe being idea P&C squeeze could the with I and That's you would of the on maybe one what do released? about proceeds Any estimate

Mark Seaton

$XX Well, the carrying million. the was X.XX% book of value on side

So we're what $XX And will now. the million don't right be process. proceeds ultimately but is carrying know value we going a through the

Dennis Gilmore

a is years just here of our been the more a regards been on redeploy business over going I bottom-line with little very of And the the John It's consistent drag this profile. a core business it's business volatile. the years. have to last into return back has to higher where we over earnings process more couple but good we're mean for

John Campbell

me. Makes Yes. sense you, to guys. Thank

Dennis Gilmore

Thanks.

Operator

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

Bose George

about morning. for Good Dennis performance Could comment that? expectations you're Hey, a XXXX versus comparing it year. repeat next guys. you the sure you just if I wasn't XXXX? made or

Dennis Gilmore

in general or -- segment? any specific On

Bose George

I comment think was performance? -- just just I general think was overall your -- it in The

Dennis Gilmore

a volatile a look super at going back I now. into we're And just back come give strong. our that's a actually XX% and still Purchase now. of things really from optimistic a detail year been I'll on for year. -- step But just ago. right right when seasonal is we patterns. very in right forward total It's But little purchase think orders some like example now. We'll

quarter, first volume. So seasonality elevated at fourth we'll say see still in an and the but I'd lower

on purchase. are building On volumes day So, the are still refinance, X,XXX we that's We've good. got order think high. capacity. still a Spreads lenders

commercial us. area the and a we that a ago two in we're things quarters optimistic couple where number It's of still to then faster improving interesting And may think a forward. thought good we it's that's looking So, happened probably probably have market. quarter getting than are even the more

so were six or a ago. Over flat the last weeks our volumes from order year

encouraging. very that's So

While XX% down still our revenue businesses. is profitable the very was business

So, then large some it's market we inside a deals. the very saw business. return And of strong a

that's two commercial move. all office seeing some -- starting in warehouse we by even as So, is in encouraged buildings you to are The commercial weakness right more than ago. guess good. thought starting in segments segments. in faster and hotels would or probably We're retail we're strength maybe to heal excuse me still But some in months all, now

Bose George

actually curious -- what Okay, are And buybacks. on thoughts your great. a Thanks just lot. then

lackluster The little great. for been down in Just a It's stock -- is the were bit. a quite while. earnings stock

think So, use if yes, you a here. of curious capital good that's just

Mark Seaton

Yes, that it at. is earnings what we're yet And stock a did strong. our pre-pandemic. too that's We I not looking our hasn't than quite Bose anywhere always near this higher feel is earnings something ago our one and mean they recovered like Mark. were year were are Yes, was thing

we're about. it's So, that continually something thinking

very at a think are -- just right optimistic strong look it's And forward taking it now. now. I and looking we're right we're earnings

Bose George

Thanks guys. great. Okay,

Operator

with next question. Please with Group. Micenko Our your is Financial from Susquehanna question Jack proceed

Jack Micenko

see order. a I XQ to commercially morning. Good up through wanted may Normally, XQ of revenue step that talk is per you driven. lot from a

here. loud out thinking I'm So,

seasonally. it of there's Certainly, market got commercial a dynamic maybe at market back also the got to held than stronger that the You've and has which of but kind you've you've refi a in dilutive is got that purchase come play catch-up here been sort see the -- what higher maybe been you're Is order that postponed be abnormally it too years? sequentially step-up revenue in you quarters. per the today could had possible through maybe what than thinking transactions prior as prior is from

Dennis Gilmore

be is. to year historically -- had QX hard in we but there be think ultimately we we down step-up how QX. like bit file you -- to there's when of Last going fee because the QX back up lot $XXX you a a a commercial it something that's about But we was see look say where reasons little based to order unknown. would say comes do per on strong I to and where is always because an of higher It's mentioned. that's is going to a now always have

How fee think commercial we on higher? depend going will of file the strength So per be higher It's market. the QX. much in to just

Jack Micenko

But go-forward And the we of sort is that the P&C severity just obviously we Okay. much from a on I volatility greater. volatility, think how on conceptually that P&C then and specialty business with out the ratio. know ratio if to back much, basis? the should the were loss warranty home loss about

Dennis Gilmore

in annualized conditioners wintertime. go the the The the We of claims Through home don't loss get to in got we or right? annually when basis, typically depending obviously seasonal, the XX% summertime out. it's is lot ratio we're XX%. a somewhere claims very on in be But many that's for cycle in So, going XX% there. the warranty XX% air on an to range higher lower But quarter. to about somewhere

Jack Micenko

like maybe upfront to changes you're make putting to higher you in like curious look price that of claims? of address know freeze would like And Sure. or you're don't a said the some some changes policy before changes period besides you kind claim? a -- then making the Just can I something

Dennis Gilmore

Sure. Yes. It's a multiple thing.

fees, sure you priced a you're so issues at price, returns. at appropriate the lot get you'll look make different service at coverage, to for look of You look you

Jack Micenko

you. right. Okay, all Thank

Dennis Gilmore

Thank you.

Operator

with next from Our Intrinsic Key Edge. is question Chad

Okay.

SunTrust. Moving to Please Mark on with Hughes with proceed your question.

Mark Hughes

ARPO. you. appreciation mix just morning. in purchase that have that how shift The ARPO Thank Good X% much residential Yes. the price home a of appreciation? and Was or might been

Dennis Gilmore

home majority vast really It price it was of -- the appreciation. was

states. first California increase our are -- I X%. our really our when is west per state, or that like you it it's minus that was So, our list of all direct But a Oregon, along on know we the on which the as Directors Mark plus and really western look had future you the state mainly in California report we operations at file Arizona they range. Washington, in biggest go fee were can file

So, it's and not really shift in just home appreciation a price really mix. big the

Mark Hughes

but properly. premium direct strong if down is quarter reported a It one agent your And your I'm strong seems lag number it a up XX%, mix pretty that last X% quarter. thinking was pretty about was a Is shift? on

Dennis Gilmore

most quarter like proxy five four one I of just out a is that quarters. say Yes, good the the of would time lag of

this it quarter So, really won.

We strong expected have But happened in. growth Commercial remittances So, have what Refis came for are a you're would lower really to QX. on right. strong. in based agency really agencies. is

really -- not there's it's mix So, a shift.

of is else. it's think remit anything I more just than timing

Mark Hughes

Yes, judge it closed it's the than pretty than obvious and to purchase that? you are comments precisely. this more but of people like the hard anything of orders top to Any on historically refi is have at the seemed you other committed time which

Dennis Gilmore

business? business talking the direct Are you about agency the or

Mark Hughes

I'm talking about direct business. the

to a the seem Just proportion orders. that higher open of you close

Dennis Gilmore

very efficient very right and say, we're busy now. would I we're

good any So, deep just very go in We're I the running very wouldn't job. operation -- is that. doing we're And a efficiently.

Mark Hughes

you. Thank

Dennis Gilmore

you. Thank

Operator

with next Our is Mark your Barclays. from proceed Please question. question DeVries with Instructions] [Operator

Mark DeVries

around commercial. Yeah. I Thanks. clarifying had a question,

your to in materially drift a you of deal in being see expect as pretty ARPO that I to to an you deals. quarter? we return ARPO larger and increase big higher, commercial And should obviously, to think up Are in continue the pipeline, in already sizes continuing reflected alluded you're the fourth seeing commercial. I in that's think

Dennis Gilmore

are. question. the we for Thanks Yes, Yeah.

the not two starting quarter see thought of we you'll fourth match it quarter. would quarters was do mentioned, So fourth the than even That the I improve deals, to to like started want see But XXXX. impact to the of ago. in the caution be we're market I kind to large return faster going quarter. that, record a we're

So we're seeing encouraged right from we're now what commercial. in

Mark DeVries

in me out a that's normal there pushing is and all? And Okay. But is closing lag between environment order? anything like that opening at what commercial remind the this

Dennis Gilmore

though, one to the I order days. we mean, lot say is days the I normal We more with lag thing we similar commercial transaction a No. roughly The a to close not it's year, mean purchase an would later. lot XX might that dispersion XX a for we can there's open -- two more close open can weeks right? around it a it could is

it certainty. follow open So, lot refi Commercials of dispersed it got mean. -- more the the a doesn't really a as to around purchase lot close, of is same we've a

Mark DeVries

your Got as finally, Okay. Should the expect target. success to Or ratio in below catch-up comments, ratio much than your success better is that -- some alluded near-term? And came prepared we expense keep target just you should it. which the that discipline does on that? for a in your reflect

Dennis Gilmore

There's right -- running We're and just was decisions into a The running we quarter, in cannot the layout decision this then, catch-up. and second didn't goes efficiently. very strategies our off back. data strategy We doing even been a it on not way to right title efforts are a we've And digital year now. going automation not the all paying to closing be decision. which in earlier by all hire our both the was smart anybody have made

we're now. the So, in our operations seeing benefit right

Mark DeVries

need that, you now that be more at to you to to volume up? if to target least may closer running capacity, see Are XX% closer you fuller such Okay. at scale

Dennis Gilmore

future. But the now. predict we're accordingly can't staffed right I

role, with of our about temps So with business. we're that. to some right the feeling we good volume some don't deal feeling issues have augmented staff with about the But our We've searches. now. We're slightly any position good

Mark DeVries

it. Thank Got you.

Dennis Gilmore

Thank you.

Operator

with Our with Mark your next question. SunTrust. question Hughes proceed is from Please

Mark Hughes

much referenced fourth the was continuing Canada that? is And Yeah. that The into release, the you how quarter revenue here? in

Mark Seaton

subcontractor the talking million. about getting In that we're revenue too. a the Government's quarter third We're this was we're relief from $XX temporary program that

in its quarter million the and in ends October. So, third it $XX really

So a away but QX. quarter, there'll fourth most in the go little be it bit will in of

Mark Hughes

Thank you.

Operator

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

John Campbell

Hi guys. Thanks.

we we a for follow-up, much since of lot -- Just default haven't obviously the a crisis next I about the quick obviously, got year concerns. business. haven't mean, everybody's talked

You guys are raising reserves.

But there of is positive also that. the raising as you default. guess Stuart walk maybe obviously reserves of have picks kind that you the year, of impact, I activity anticipation well next up. impacts revenue of And now? like assets been kind the if just the moratorium? think there's can kind But I if What default of could what maybe with look through have

Mark Seaton

John. Thanks Yeah.

And financial a back, profit have default it like us crisis, the a we the highest hedge great in a for by the default As really before you business. center So, huge serves our good as company, right? margin. business was last mentioned in

last things or so, As that. things have use case be years the these recovered to off. But XX by there in here fallen volumes great in it's really have foreclosures

at about our last And it's far So this year-to-date. is versus business running million flat, default basically of or revenue so $XX year. year,

seen too. default in a our But we activity. in So a we haven't haven't pickup again, foreclosures seen pickup really

we see So to will our come business default that start up. do then

Dennis Gilmore

John, it's Yeah. Dennis. And

housing into reserve up, as uptick and would advances in typically I see that's And rate But for we still closure. just have if as first the going appreciation countering that going the roll kind move off I to know equity go our were off. their on think they're a strong that market. to real not is in you we going now of So possibility thinking the let the term, the think roll right moratoriums people longer house And XXXX, default.

say real I'll stage at in defaults any now. this right -- to increase going is situation want equity the think I So significant

John Campbell

maybe the to you -- last right? you have talked release, helpful. far is estimate? the that quarter, think think have That's guys are And you versus think XX% actually I where running And now where about but right said Dennis, I you're I Okay. might over as we reserves this as

Dennis Gilmore

of I'll the And part Mark let that answer. give first correct. That's

Mark Seaton

Yeah.

again still healthy XX% as in X% we're over and the X.XX, now. not that we're we're right but close of So -- position actuary about to reserve range, have we a very

John Campbell

Absolutely.

you guys. Thank Okay.

Mark Seaton

Thank you.

Operator

Our is SunTrust. Hughes with your question. with next question Mark proceed Please with

Mark Hughes

Yes. to home we say of Thanks kind XX. the business in impact think the you appliances about it If and it to say plumbing, the fair points X that went that's warranty a the increased that me. for to frequency you loss saw? that the of ratio Is XX represents would indulging be from fair from of

Mark Seaton

definitely that's great. mark. The talked about No really fair Yes. home warranty business which staying is are home. we People

people mentioned, claims getting higher more. Dennis to As at and that's we're attributable really staying home

So those deployment losses trade appliance higher us. are causing for

Mark Hughes

Okay. Thank you very much.

Mark Seaton

you. Thank

Dennis Gilmore

Thank you, Mark.

Operator

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

may now disconnect. You

First American Financial (FAF) 22 Oct 202020 Q3 Earnings call transcript