Earnings call transcript Q1 2023

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Operator

Greetings, and welcome to the First Quarter 2023 First American Financial Corporation 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. XXX-XXX-XXXX call from recorded and the short by the available will for that entering time replay and for company's dialing note is ID and being be a the Please conference XXX-XXX-XXXX XXXXXXXX. or investor website

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

Craig Barberio

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

Ken be us Mark DeGiorgio; on Officer, call Chief Joining and Officer. and will Executive Financial our President today Vice Seaton, Executive the Chief

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

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

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

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

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

now over Ken would to DeGiorgio. I to turn like call the

Ken DeGiorgio

increase management margin a us investment along title market of deliver the although weigh conditions our first net in quarter pre-tax X.X%. you, income XXX% to Thank on expense to Ongoing efforts challenges continued results, with our enabled and Craig. in

had a pre-tax quarter Our margin of home a XX.X%. warranty with segment strong

$X.XX investment and housing prices and rates result by before as with On our basis A residential or impacted X% decline in per the driven purchase market above adversely inventory elevated we earned losses. home mortgage affordability sharp business. net a along share consolidated $X.XX low a

however appears Currently purchase market the stabilized. to have

seeing per the with April, with of over trough For the orders in X% are three first order weeks trend we the rates day. need open unlikely Refinance in seasonal at typical future. improvement remained in well to mortgage incentivize March. below quarter, of first highly significant near loans levels refinance open is averaging would orders current compared up to The purchase activity, pool drop XXX a uplift in see which the X%

three revenue back began quarter market, of The this weakness the across XXXX The including classes decline all were with XX% in in first was from activity continued industrial of and trend year. the into with were our in down down commercial that the commercial half Commercial results and XX% which XX%. in orders impacted our also and open the large multifamily deals down XX%. orders asset has regions first seen last order quarter and April down weeks

half from of that second on a available the the given discovery ample degree notwithstanding, potential and outlook of optimistic will is market made baking the on uncertainty commercial progress quarter the year we crisis availability, feedback concerning impact there While price remain in improve activity on we the getting are transaction of high first capital customers, based the credit. the during

long-term Our which growth initiatives, in financial imperative other investment are strength allows strategic for and innovation our continued strategy. our to

streamlines platform, which our signing national settlement its the digital announced title has progress documents continue in the Endpoint estate company, This notary now presence. which and launch mobile to real of process at We transactions. Endpoint, make of a month,

proprietary company technology. time first has Endpoint's has the company use title that leveraged begun to broader Our the platform, the

as well. for the improve customer but other only the First and for As efficiency experience drive closing not Endpoint American it itself continues reengineer process, to divisions will of

our we During to transactions, operational instant also and discussed decisioning improve last title expand initiative few our advantage. the promises efficiency have to purchase quarters, which competitive develop for our

year. success markets testing, the next two of Given our early we it deploy to the within expect in

technology factors and This in unique number most is a American, real including data property technology title and our our possible teams talented First data-extraction by proprietary of underwriting made is which comprehensive and to by sciences industry the the database next-generation technology. fueled

experiencing make the flow cash which and fifth to now continue largest turned market, also growth We subservicer quarter. is the this last progress after quarter ServiceMac XX% positive revenue in at

want In resiliency customers, share two to pay shown grow company through our closing, in when committed remained dividends enabling market XXXX difficult which the and current conditions. and us our to over cycle have to points who I our our will steadfast turns. percentage employees, market thank They've by

in pleased consecutive am of also to that best-in-class Place addition to to First the Fortune one announce innovative to by and has American delivering been our Magazine to our who best year. and XXX companies work a new find service, I This to and meet customers' culture needs. is for accomplishment the named Great continuously people, Work ways eighth our tribute unique for,

to the of results. our more to financial like over turn discussion I'd call detailed Now a Mark, for

Mark Seaton

Thank Ken. you,

we quarter this of investment $X.XX $X.XX Included diluted net This results, losses. earned in per quarter's share. were

segment per down $X.XX quarter same in Excluding billion, compared these Revenue losses the $X.X share. XX% title we was diluted with XXXX. of earned our

XX% a last decline $XXX year. million was revenue Commercial over

transactions revenue average fewer the combination and XX% in order market commercial prices quarter $X,XXX a to to for Commercial per valuations transactions. large lower reset declined Our as this of due

average in increase Refinance mortgage revenue down to rates. year a was XX% increase the decrease in by relative offset due XX%, the a the driven in quarter, orders XX% to of last order. declined revenue Purchase per number by the partially revenue during X% closed

million, down from Agency XX% business year. was $XXX the revenue In last

of these QX economic the Given in approximately activity. reflect reporting agent revenues related lag remittances to results quarter, one

company's and document units, and services. Our million, Other last was and several relative data the lower Information information across were $XXX This including decline of products and the XX% to generation levels year. down revenues property result transaction business post-close

Insurance the receive escrow we XXX% segment million, Rising a on Services rates balances. the balances year. our $XXX and was cash income relative income Title and Investment property investment tax-deferred the interest portfolio, and to increase are exchange prior short-term interest within benefiting

As we be investment short-term rates in to earnings income to XXXX. continue tailwind a expect have risen for

to given side, On continue in the we manage transaction decline the expenses expense activity.

Our expenses success ratio was and XX%. and Maintenance and declined declined net million revenue other $XXX million. personnel operating operating our $XXX

sharp fees premiums we million fund and Though success target continue transaction below the claims provision for good strategic losses from XX%, was ratio provision other activity our in our X.X% and quarter of the our in given X.X% commitment outcome first to long-term in loss to down The a year. initiatives. decline the and escrow $XX was prior or rate the of policy believe title

an rate of year, a ultimate the $X reflects X.X% The with loss X.X% release for million current loss for years. prior rate policy

change X.X% to that the at XXXX may activity. As of expect of now remainder on for we but depending claims book

Ken the continue businesses in adversely positively But life As will and long-term. profitability at impact contribute we our in this we to highlighted, point that results. in financial invest to innovation initiatives believe their our cycle

margin Endpoint pre-tax together this We purchase impacting and pre-tax million by decisioning title basis of XXX have a loss initiatives: for instant quarter, points. discussed $XX generated transactions, our which three ServiceMac,

of in net to X.X% $X gains. amortization was severance in were Pre-tax related segment investment excluding X.X% asset the the and Included or Title incurred million acquisitions quarter. result of $XX this margin during intangible million

last from moved and our of business Warranty we million results reporting and ahead this result revenue $XXX slightly Total to income Home Beginning was Property disclosing as the million, Warranty in are stand-alone unchanged quarter our our in our totaled year. Warranty year. segment Casualty $XX Corporate a Home segment. prior Home Pre-tax

loss normalized The for and a in insurance of quarter severity effective between up our tax by rate than from The of tax the lower due was was driven business of XXXX generally to XX.X%, frequency. Home taxes. premium higher XX% partially state our the in in primarily claims ratio non-insurance lieu paid lower income insurance offset businesses XX% Warranty rate XX% our of income mix since by

we quarter average XXX,XXX $XX.XX. first repurchased a an of $XX of shares the for price million In at total

payable. March of both ratio XX.X%. was impacted loss other by XX financings This accumulated companies Our ratio secured was debt-to-capital of and our as our

our ratio debt-to-capital which Excluding line these with ratio two fee items is XX.X%. our bank was in more

last X, notes February the year repaid that partially expect to we we using on at million to $XXX replace in senior on As unsecured cash of we draw on line hand matured quarter our holding the discussed company. debt. this Later

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

Operator

Thank you.

Our George question first question-and-answer question. your We Bose Please with proceed from be comes conducting now [Operator session will with Instructions] a KBW.

Bose George

persists is kind I margin on the you margins. it? ask guys. more to given of the can just for you Hey, the just wanted address side weakness about sort to morning. if the – year. of And this there Is expense expectations Good broader can markets, in talk do there about

Mark Seaton

question, Thanks for Bose. the

we'll refi, commercial When that commercial out to headwinds at look face So to the of are challenge purchase mean drives news yet going really and we going really have year. still is headwinds. is have The getting the we've market. good you evidence year-over-year this refinance, those into and But business, and purchase certainly last seen markets to be relative all our the there. I the year which close is bottomed really obviously

of for year-over-year year. be tailwind the bit on basis. income be at got this incorporated obviously a looking it is this full a It's little but year, material of for we be year going for help investment year last a not few think did that acquisitions a margins positive I a to the We've side us. us, will will

narrow of of And these We took think expense measures to off we've year. loss lot efficiencies continue the still this some going investments to about are talked a and that we will get of last strategic based year. we the

that is rate business margins. to P&C X.X%. then $XX our to You this that our And million I'll the just Obviously, and obviously say going that's narrow saw going to help last we lost year year. loss that lowered lastly loss

that to – double-digit more? more today. on that of mean I what terms is mix in do at we all based sort of when market XXXX our – looking even a be going mean is double-digit year, see this And think least we're do than together, still we you we trough year. with worse can always So in margins can a though what margins at But there's I looking we're we expectations. in at we're the

Bose George

have And that you the bit? Okay. then forward gave helpful. expectations past, noted Any change Great. rate the it obviously on interest little in income tailwind. actually remains a That's a to changed guidance you

Mark Seaton

One didn't we what they income two Well, said forward like things balances the that the in assuming going hit was could million XXXX, were I'd was that going that to that happen. change. Fed we $XXX the say back with it curve to for is thought QX, that is of for market funds thing played out QX even and rate second levels, investment

Fed And now balances what's And down thought played happened is XX% market commercial business have out the certainly from our has to really fallen. QX sequentially was but like QX. funds has the rate

was so And income just investment balances down because our the fell. sequentially

income at investment that. it QX investment see feel getting Title $XXX So any for of when We in trough. this outlook we year, income kind than don't we of look the million like in of lower

update forward update we're assume curve. – flat of sort balances and the just our took we sort and guidance We we of kept to that going them March gave if and

average income Now, the And balances. we March again that's off of investment million $XXX balances around somewhere based balances. But year. March are look lower typically of at than this

throughout So as we'll of we the picks higher up hit year, Commercial that. sort than think

So it just balances. was investment because down income this quarter of still positive just we're but on

Bose George

Great. That’s you. Okay. helpful. Thank

Operator

Our from Truist. Mark next question. Hughes with your proceed comes with Please question

Mark Hughes

you. Yes, thank

balances gave for to weeks Just from April, Mark to but XX% in last ought year how is reason think here? decent a visibility the first progresses. Commercial down, as the there I was three Is balances to the your you think there the orders billed there progress about point will it of that?

Ken DeGiorgio

obviously, balances. answer is optimism to going there half About commercial this commercial balances that of the Mark, drives the I'll business. our cause of Hi, one. is tied I rebound commercial market are that And think in those year. is crisis. largely for customer the Ken. lot and And to a our mean, I half despite least XX% feedback that our based we're have concluded expecting comments or our are banking -- hearing still second is on as anecdotally discovery at a there's stronger will still mentioned -- of I because adequate they price mostly concluded they're the capital in second my

fairly commercial strong watching that is be that so record to closely up going XXXX. commercial to it Obviously, compared that in market. will availability watching end this a the loan we're everything But we're medium-sized particularly anticipate far obviously we smaller year. is hearing Though to down

Mark Hughes

your fees income. similar pretax I'm cost had premiums Is this when XX% think When maybe XXXX properly looking what structure quarter thoughts escrow perspective -- in just give that? you about you and on at the direct Title XQ investment to we -- back had Yes. margin less to you on a or could in some if it looking lot pretty

up was that and strong could you making rebound volume Is these know out last years in an that you're coming. investments had initiatives. the about structure very the growth amount as I built be see if you didn't these a expense there's you've talked taken few

but a some the might you give than have how reflections on is four while it's structure this ago, I it if been years comparison. just striking wondered now could different cost is a

Mark Seaton

it when XXXX, back look at a was number of better Well, you in I'd the market transactions. particularly just certainly say

So, that in commercial least in that drive seen XXXX. markets. the seeing refi in much of so three purchase the and business far financial those transaction great you even our before look of was at stronger markets we since XXXX haven't big accounts crisis all what we're lows back terms really some at

commercial cost similar. about So, just the more whether very we we've that units general. some of look our individual it's in talking business in you like investing initiatives been structure just or been have our technology at direct it's these of It's when and business

relative that's So, say XXXX. I'd just what to

Ken DeGiorgio

down add and one that's Mark it to investments thing mentioned but a Mark those from his would too them perspective, that. sense as sorry. shut we do comes obviously initiatives We in I want to we are slow I'm can We guess lever or don't the it significant. think long-term strategic off. don't makes have. We strategic when the comments is -- the a I

Mark Hughes

maybe you the about topline And Warranty could if business the think then some Home give there. on you Yes. I thoughts what wonder with happen might

Ken DeGiorgio

Home our Yes, a I we think as strong noted. well Warranty had quarter business

the the I and on of in The real estate estate think the topline our channel mean channels high a business correlation business. Warranty there's Purchase two degree there's with I channel direct-to-consumer channel. Home real the

put if real as had fall will success their to see So, But they the transactions we lot estate continue business. a they've fall on of pressure revenue. in that direct-to-consumer

real almost example, for it XX% the was the down channel In was up first quarter, whereas estate XX%.

there. opportunity So there's

performance renewals the over X% real thing we're The actually in XX%. the renewals with channel both to other have seeing channels is up good estate respect some been almost just in direct-to-consumer

facing estate we there that think they're in same our the the So, there's in opportunity Title businesses. real channel but residential some headwinds certainly are

Mark Hughes

much. it. Thank very you Appreciate

Operator

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

Mark DeVries

appreciate of more I color thanks. the little a drill I outlook provided. Yes, on the wanted half back to commercial for the year. all down the you

rates? transactions the these the that higher Does I more? think file? larger upward at we price find sizes of impacting have fee per an an is impact one if the is question that And on so is issue equilibrium discovery kind

question and there wake to of of you're much a kind your And tightened credit regional looking CRE banking transact. this disproportionately investors to their in customers as And from is from commercial of you price as how tightening crisis on supply discovery the are reach begin is just find lack that see that they the concern of kind business. of even hearing that equilibrium banks second

Ken DeGiorgio

I discovery think large more larger the others. if than -- I Mark mean substantially not much clear impacting transactions is price it's

large transaction quarter, fact is first price down suggests So, we were from could I discovery an the infer in volume that impact probably XX% that on. having guess probably counts our the

XX% we the I come think transactions large we're mean, the if into commercial to to the go in transactions large well. said, going see prices have office. that I markets, the our fee in down respect with in yes, whole, anticipating seeing market, back with value impact that the XX% on on in per as that But positive order. to decline will a average we're are XX% per file, Now, revenue

prices down. think, I going across are So the come to spectrum,

Mark DeVries

the of from concerns any Okay. Got availability funding And banks? it. around

Ken DeGiorgio

mean, about I keeping But, have it. on eye an there had Yes. that some hearing I we adequate we're We're it. there's anecdotally no, concern is -- mentioned, as capital. moderate

a and in particularly credit You about read smaller media banks -- medium-sized available commercial trade the lot making certainly on mid-tier to deals.

much an So we're it to is what there's concern. issue But, a obviously, something It's at we're is, our watching, don't they seen. least now. hearing see from but base -- be it's remains customer right

Mark DeVries

Okay. Got acquiring? the opportunities to acquisitions some subscale under? of this here, you are for improving the players Are distress, of given business. to prepared be some so, in challenging be environment these if to in of it. has I next kind you just seeing be aggressive And got players particularly And title question, do mean, may

Ken DeGiorgio

-- I lot of compelling. to attractive seen Yes. expect I given Mark. opportunities, opportunities. market interesting, where not mean, that too we the it's we a not in But opportunities. are proptech mean, some some we're space like, the particularly, We've haven't see is, seen

current the think be on activity, be to capital but -- our think news But yes, being will there the opportunities. as And prolonged, to about M&A the be they're them. disciplined always we is, very challenges coming. we’re If we'll prove we seize have ultimately I good

Mark DeVries

Great. you. Okay. Thank

Operator

Dowling Our next & question comes with question. from Partners. with Please your Geoffrey Dunn proceed

Geoffrey Dunn

but put end in morning. escrow quarter? the you Good in as and can the front Thanks. you of for the balances know give deposits Q, the run of it Mark, I actual XXXX

Mark Seaton

had quarter deposits. billion Yes. exchange your of XXXX? Thanks, Jeff. At the question, XXXX the end Was $X.X that of we

Geoffrey Dunn

of well? that's the you Do part have it. as Yes, escrow

Mark Seaton

I'm sorry. Yes.

points XX -- about had escrow total -- we $XX escrow So deposits, billion.

Geoffrey Dunn

flat? So that's

Mark Seaton

$XX Sequentially, billion. it about Yes. was

at But Q on slight at in billion. balances, report bank of balance the billion. of we for the going had $XX.X year, had I'm of in XX looking the difference from balances, our $XX.X timing. we March we're And end book -- as is escrow So a we terms bank

sequentially. So on escrow. That's they're down

Geoffrey Dunn

Okay.

really guess It net amount. seems big like I sequentially assets investment you type is more? swing sheet are a So, escrow -- $XXX flat. bit XXXX? that little Can are -- it's so on for you XXXX a yield a of up your I into decent What your where your a in balances, and income million dig decline was mean down getting balance

Mark Seaton

Yes.

XXXX But right we're Fed we the well, is the funds. quarter. change on statement, average a general as So average X.X. get -- about Fed that rate now is it's quarter for the getting throughout funds -- Obviously,

So, as XXXX a for business. general our funds statement, we're getting Fed

Geoffrey Dunn

And how escrow? does compare to that

Mark Seaton

Escrow, we're getting about Fed bit funds same as little less. thing, a well, maybe

on So more we bit but get funds. it's probably a Fed generally about XXXX, little

Geoffrey Dunn

going Okay. And the capital you All and in do do you you the that. year then, just were you current M&A increase a right. return about challenges? weigh macro obviously, that indicated you capital macro that other How you How did. Last think the to talked about buyback for activity question, having environment? tough in

Ken DeGiorgio

earlier. I Geoff, a about is then and which, listen, I M&A, to Endpoint shareholders. as remain always same. capital the strategic our returning of talked to about in the reinvest business, couple thirdly, and we've other this doing decision and with is and initiatives Ken. title priorities mean, then, Yes, which today, innovations One And talked we're times

be repurchased had our that of to certainly we're demands including attractive our be outstanding. XXX,XXX over respect going attractive. expectation on the the I M&A going our we repurchases, some QX, forthcoming. given repurchased opportunities opportunistic, all year over price mean, I Last shares In there's With shares. X% to we to mentioned as capital, current is But

Geoffrey Dunn

Okay. Thank you.

Operator

from your with question next with proceed John Please question. Our Instructions] Campbell [Operator comes Stephens.

John Campbell

morning. Hey, guys. Good

Ken DeGiorgio

Good morning.

John Campbell

Hey.

the the the I and called Title the mean underlying then So impact we you if getting out, back investment to million like then kind Title, X% margin. and pre-tax to back in income up severance $XX you back add headwinds negative of I'm charge a margin investment if guys for

the to to crisis see XXXX back had housing so during I think margin. a you XQ similar go to

everything does But moving costs agree expect get couple these bit as On lift some for for XQ, carrying of trying which you sure. cost there, I'm if kind next hold the side commercial, investments like maybe taking things just provided a you from this we just be to if actions of a excess kind you sense improve a hypothetical, sound holds? as Mark's a margin year, you question might with next get maybe you on if flat, guys current to pairing resi what better you environment guys parts it might the of and of at because as think type looked then but of you well

Mark Seaton

done of at that a thing income few investment one there, really the I things and and generate like there's thing our that operating too, have I'd say backing it Well, that, have we've the we others just mean discounts John. is same businesses have you like out income. all that costs

the associated the our our and apples bank would bank example, not expenses the but oranges, the from for just the I and revenue all you bank, personnel So other all it's operating not quite XXXX if exclude have and with costs say. the just business, all and bank you

The expense is pays too. bank thing our other interest

you sort back have So that to out. of

one point thing that's So to. I'd

to as the cycle the I margins margins, said, basically that's year. just feel XXXX, it we about it's outcome we market tough this considering conditions. a think of at I like Again, And sort an double-digit back Olympic when good mean, we're ago. tough because, was But, just again, looking going

going to hopefully one, get a few areas. lot and So tailwinds. we when for Number lift obviously, feel have we beyond, out market we're like of look a XXXX XXXX, different we'll

in the management to it us. for two pay some our expense just the I'll And will success hopefully, strategic these will quarters. initiatives couple operating normal and a last we've of three, call that of pay continue to of Number is lot with dividends off ratio seen -- continue

that at that -- highest And we've so, really in XX%. XXXX. margins company our we've We together, saw seen you wrap all when the least is

outer will market things in materialize. inch we're once the Now trough year having XX% years this closer to but these we a

John Campbell

that the level great really a about that comes cost I higher income. point. incremental excess with of investment didn't kind think of That's Okay.

point. that's So a good

kind On the baseline like of outlook, at XX% year. that's for you pre-tax this least point margin contingent on Title or a if expectations of I'm curious resi Mark the mentioned the at low get cost as well as to as XQ, be improving market with able what a in still there you little market least bit? commercial action think do or the you saw sags you'd XXX%

Mark Seaton

I No, tough pretty mean in assuming sitting that's April. say would environment. a we're I here

So we count. have revenue based of off visibility sort the into order of June

pretty or So for know half the first less. much we what we're going to more do

still recovery second would not and margin QX half that market is purchase no seasonality a and The pickup commercial, the -- side. particularly of up. big I there's in we're going uncertainty, strong be. flat don't commercial. with some refis particularly to kind assumption how assumes normal residential It We But market a double-digit assume assuming on say on the doesn't picks

So there's that. not -- there's no stretch assumptions with

John Campbell

that. sure I Commercial P&C Okay. that's moved falling the to a saw get P&C into That's excuse $X.X Corporate, much housekeeping of into to costs. just a grip me With claims on make helpful. How into me incremental Corporate? just tied expenses -- want one question. And last now being I I or better for million

Mark Seaton

operating through or have the just pipeline roughly that and about have the losses two. We've of XXX million couple got policies working we're really very narrow any quarter, $X going outstanding. about minimal that's had million of quarter because kind to in at here expense. don't for P&C. We Corporate we a We of we remaining So of think still claims next the to

negligible from So here I on would say out. it's

John Campbell

Okay. guys. Thanks

Mark Seaton

Thanks, John.

Operator

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

may You disconnect. now

First American Financial (FAF) 27 Apr 232023 Q1 Earnings call transcript