FAF - Earnings call transcript Q2 2024 | First American Financial Corporation

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Operator

Greetings, and welcome to the First American Financial Corporation Second Quarter Earnings Conference Call. [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 13747727.

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

Craig J. Barberio

Good morning, everyone, and welcome to First American's earnings conference call for the second quarter of 2024.

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

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

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

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

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

Kenneth DeGiorgio

Thank you, Craig.

remained pickup earnings in per share While in market diluted $X.X conditions benefited and seasonal quarter, adjusted our challenging $X.XX. demand. the was from the second billion, Total revenue were

this of to purchase Our proved the compared title selling market, signs segment positive XX.X% XX.X% disappointing. quarter early spring last be delivered margin pretax In despite adjusted with year. the an season

weeks prices demand. Despite July coming tight as affordability than X% off quarter and the progressed. less a activity muted led with orders issues, weeks elevated inventory orders to conditions year X% quarter. rates, activity, were the growth XX%, last closed up Our direct transaction quarter. high mortgage suppressed home less compared three increase price with order three refinance third home The open conditions has were second we through the than resulting July. into purchase but of continue in up revenue. of in the double-digit June Challenging up the open orders quarter, the in first X% of X% the first in posted our down purchase picked a with direct revenue orders low with as X% down accelerated for second in in open accounting base. refinance we Refinance Closed far so are appreciation,

continuing Closed Our Commercial X% business in of is were market. orders in stable uncertainty the the down phase the quarter. in second

while on in we July, orders uncertainty however, expect business For remain will to optimistic, rebound the fourth meaningful we X%, third strong seasonally in in quarter. activity ongoing the of quarter. three are up We first that the a open weigh weeks our see Commercial the

pretax our drive an results seeing our Home adjusted long which delivered segment with increased real Our same on again Title strong channel of business, the term. Warranty we Purchase though is are direct-to-consumer channel, emphasis over estate the increasing we facing in we Companies our are the expect profitability XX.X%, to margin headwinds

made on initiatives. have our we progress long-term the to Turning strategic

is leader timely comprehensive, with title American assets First data most data the the in the undisputed industry. accurate in and

have XX% a process bringing that call At to in we our title Sequoia, to purchase transactions. purchase of was we successfully leveraged Riverside ongoing automation transactions, is is automated success Endpoint, assets underwriting platform properties. In pilot these of extend for next-generation successfully much data. complex assets with underwriting closing early While more automate built of goal an data title launched efforts This we advantage Maricopa initiative, a have we the counties years, decision and refinance transaction, insurable for least launched of competitive extensive had and rendering on which these an for for at settlement to residential heavily residential the in dependent transactions. we've April, which to

further enhancing will and focus deploying it we forward, this Going in technology on organization. a broader

maintain will Sequoia, we the term, XXXX. fourth efficiently our in to first to year enable uncertain commercial our of the ultimately second title us quarter. the and the Over and half the and initiatives modest we on enable depend expect faster our expect and which at full last market while July, growth After competition. in the this more call, looking margins to service revenue other books indicated long pipeline our performance, customers in results we perspective than a that earnings strength posted On on will Endpoint, in the will closing order year, our half that currently on year achieve the similar the we of us we what particular,

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

Mark Seaton

Ken. you, Thank

earnings per $X.XX we This generated quarter, of diluted share.

was adjusted of share. $X.XX per and diluted purchase amortization earnings, the Our losses excludes which related net impact investment

still X% Agency billion, was the our is $X.X in same to revenue X% a rates decline last above commercial commercial at the million, relative order per quarter up year. with Refinance $XXX hovering was revenue are million, revenue XXXX. revenue quarter, Revenue was the per Turning revenue activity. In materially increased by our Commercial to X% fell closed around down in average segment. average for driven significant business, needed from rise X%, declined down Title revenue a they increase X% year. during generate year. transactions of $XXX refinance orders last compared what levels mortgage over was X% Purchase X%, the to the With Though last X%. a X% order.

was $XXX $XX driven offset primarily million in from revenues results compared compared income a due premium QX income down $XXX higher million quarter, interest-bearing increase rate an which revenue, primarily lending in lower for increase and or The by the was economic reflect lag second partly direct agent in interest premiums to these second average escrow The policy other the Information and capture title comparable was of decline million decline quarter property fees. Investment agent, were caused activity. loss and provision title title warehouse year. approximately by the an balances premiums the during in same X.X% tax-deferred decline and of affiliated one X.X% from of revenues from of in down prior exchange with and a escrow remittances claims in quarter, the information provision company's the the escrow other the down and primarily was business. $XX losses related the quarter with reporting This other quarter, and million rate year. fees, year. in to last Given X% last

normalized loss on years. revenue quarter pretax down XXXX. XX.X% up in ultimate lower for year. partially XX% by XXXX the was was claim Total in estimate was Home margin in with XX.X%, year. The frequency. Adjusted of million, The repurchased current segment we adjusted $XX the price $X $XXX quarter total in $XX.XX. purchase-related severity margin reflects the second from rate totaled income Title net of the prior due an of at policy of prior effective was the an claim our XXX,XXX XX%, for Warranty a million the up tax quarter, basis for tax an in in segment Home X.XX% offset year, line the rate XX% Warranty of In was a that XX.X% policy XX.X% $XX or for Pretax in Pretax was last XX%. Home amortization. reserve both rate million from The loss rate to and higher million, shares second loss Warranty unchanged Warranty ratio business XX.X%, in excluding realized gains in average our with net and compared from Home decrease

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

ratio was secured Excluding our payable, financings debt-to-capital XX.X%.

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

Operator

our Truist from Mark question [Operator line the first And Hughes of Instructions] Securities. comes with

Mark Hughes

direct-to-consumer Warranty about you focus talked have load. Is maybe of What upfront that? -- business, kind that Curious kind What the the that. impact be about could profitability? channel. motivated expense that The of a going on a to in on

Kenneth DeGiorgio

the diversify what pressures business, question, mentioned I just mean, opening big Yes. transactions the connection warranties Thanks Title selling on our seeing real same we're headwinds the the estate home in the estate of given business. Yes. channel, for purchase in part the in is that I looking channel. Mark. They're motivated suffering facing comments real to with A is which my had is

and one of the think the the of homes is There's green renewals really investment aren't been into for So that has a ways an was ongoing direct-to-consumer to opportunity, the of an the warranties, implication that business. this ways in is There's covered a capture channel. home direct-to-consumer. the and the also -- that question direct-to-consumer -- best which your need with capture but the you of there And a the an by realizing one It there's was there's opportunity home channel. -- get it's I start in channel, -- lot the profitability to of of DTC fact space with -- takes there of upfront lot associated to years, to pursue warranty obviously right. product that to

Mark Hughes

What successful on of with what decisioning. And Sequoia does the of initiative, that in the the order, the opportunity kind terms if instant revenue per mean forward? of then there terms revenue you're going are in implications

Kenneth DeGiorgio

pilot early. at I we're I'll comments, just in is Mark, this as that out very, stage, the point we my in April. And very that rolled mentioned Well, out -- pilot the

So be will a we want -- what's Sequoia early if then so tell done, Maricopa they we they successful. what and faster, can there opportunities to again, ultimately it's if because will far, proven instantly. want title also Sequoia feedback with from there very that Riverside we tell. proves them be pilot in gains And and the obviously there's think counties. revenue and issue ultimately we've at the out customers But is associated know piloted efficiency things to real get And

Mark Hughes

then expressed view hear more about maybe hedged that on I a the maybe little on optimistic Commercial, but bit XQ. that little And fourth And tempered a quarter, the right? motivates what Did XQ. you

Kenneth DeGiorgio

guys -- the was example, more orders on on are which may that mentioned, in on we're based were refinance, QX, that been a is I but on Yes, But optimistic of and weeks, did down. first off be up at of office loans we they're open the I in QX you out QX, as optimistic shift in due. just particularly work very We Well, QX. coming saw I in we down than we a what we tells in QX. have X And XQ look X%. hearing issues, QX. see to me tick think bit coming that are the to some starting we saw for orders revenue trend mean little and July I X% of closed

And bit. our little So also in per that's a and think we a is sign to things order, sequentially are starting along. year-over-year average price in discovery indicator both saw is that an revenue further we increases move QX, that which

Operator

Our question with the of Mark Bank. DeVries Deutsche from comes line next

Mark DeVries

My first follow-up your question a comments, is Ken. last on

reason? fourth of transaction that having On you're conversations the the and size on the velocity? is those optimism clients kind of how the optimistic factors, quarter, year last shaping Are about for up end with there the two how you of terms the are main make in

Kenneth DeGiorgio

I mean I It's both. It's factors it's Yes. bit little described. just a of the conversations.

the as there's so it's the before of expectations seeing -- but is course, But I the is think listen, big. rate the rate I it's all three things, I've they're what anticipating our the of -- the talking expectation bit are. But some lot then and volatility a said trying which people and to optimistic. reductions own get end predict market an I going that their those little pipeline lot what to is what might because -- accurate. think But but it of I'm are never commercial reductions, the think But it's in weary is uncertainty, of forward we curve getting in curve we interest do a about of obviously year. of and past, to forward a are of

Mark DeVries

update that was I last give what quarter? last the to on offering from hoping was the of talked Okay. little migration through an get about you an going you're Fair update efforts the that Could you enough. us a the just you your deposits, to Mark, And whether happened over then, on away, rate. on some defend call

Mark Seaton

sure. Yes,

on is about which different escrow we So of year, it. any the income economics XX% came in At stabilized and of our I of about first how of that of capture talked deposits, reasons. million line Title to we in where talked from we mean the with right in kind investment the how investment high in $XXX came of end range, it's call at don't our million our income expected the $XXX segment quarter, with this we saw all, last expectations. for line And last quarter. the rest we we for

So In in was XX%. QX, QX, it that was XX%. number

So even yet. haven't I and really mean it's kicked initiatives them started stabilized, to We our just in July. kicking in

got initiatives these we benefit are deposits quarter kick that own was more to And to really for customers to market-driven and we our that this defend the so in. and the starting banker have deploy incentive use just now just

feel we things have that on that good front. stabilized So

Operator

Our of next with line question Bhonsle Soham comes from BTIG. the

Soham Bhonsle

here. Bhonsle Soham

or in sounds it things sounds you've the in on up mean, Should following And we Just NII, the then that up defend back in the these as go cost the there it NII? expect -- put July. like half any income outlook -- I what's place some interest half to guess question, year Mark, on back in deposits? I like on maybe you for then last

Mark Seaton

So there's going things a on. few

second for QX the end lower For of we that year, QX. million of be quarter it now, half around somewhere and will think $XXX the a at right range, the

for -- that. there's of One reasons the and two really

And The of loans first is home July point original on home our we point of with home came deposits. our X. lost million the $XXX point loans last those loans,

that basically our longer So bank there's Fed rate $XXX of [ point of left the have deposits we loans, that ] we funds at, July of were no as X. million and home original any turning

So income to few quarter. million there's investment the on a reduction there there'll for corresponding going drag But in interest be a dollar too. third be expense,

won't not to when really So bit effect. and in in much. quarter, look actually too. get do November and we will December, And the But investment cuts on to it's of an then September matter rate terms put pressure pretax, really three December going if have of little income, that fourth a we

and So look million when still feel QX we'll $XXX because those a at of QX now, it be we we for like factors. quarter

Soham Bhonsle

Okay. to cybersecurity from margins, last to back And obviously, half? just you of in the I maybe back margin the the here was then cadence understand title Because issue. progression hoping year, had

margin. an quarter to XXXX, can't that of environment of think so fourth XX.X% we But the sort that base quarter. in the ] still did [ sort are look you for And commercial where was really use the as pretty I fourth back I if of a And on volumes decent.

in So half well. yes, any thoughts would as on cadence for helpful back the margins be

Mark Seaton

going this that's about is have it's and just of think on the be depend the Ken would our QX lot how typical in what A of refi year say we that market. margins, too. significant a commercial activity, the we I just to don't where going pretax was to talked case peak is strong year,

water hit strong we title in peaked as through on seasonal the QX of So will out our market of is. think high the kind not much progress ultimately, it refi like normal there. we depend We again, year. because have QX mark in how And commercial decline sort this feel But the year. margins expect margins we there's

Soham Bhonsle

appetite Endpoint Okay. sort just I illustrating of longer for here? it, X more Or the any regular one equals was of as that's customers maybe we that term? of and there you like And of going to And the sort sort or then cannibalization Ken, the any doing last you're is think X? plus used building Endpoint. then, title have could should be recent way of X hoping call technology, that wins helps share anecdotes on from whether what

Kenneth DeGiorgio

it a generally, of as the further and liked as Endpoint that platform in I mean revenue I'll stand-alone direct like Endpoint. have that keep customers the Endpoint to sort the experienced addition have in is pretty capabilities organization. this taking. sort real we But operations production mentioned, efficient. And is the notary base a focus title on the but mainly, what then deploying company. operating that's the we small opportunity past our the is the talked organization not businesses, we And it's which approach of going Endpoint, mobile more Endpoint about just think making in have call broader with I broader in of where side enhancing but the side, in Yes. lies area the management. And in that the Jot, broader of say mind the in forward,

more us make will it make to I us it promises So think -- efficient. more

it plus So a see I as X opportunity. X X equals

Operator

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

Bose George

Titling from the builds you impact any that know if this of out? Instant as and we margin was already, margin but then think Should gave from Endpoint, Actually, I from don't and drag Sequoia? what that

Mark Seaton

Yes, mean, of together. reported points number sort question, margin Thanks [ ] for historically, drag bundled -- I for basis the quarter. that so and Bose. Sequoia Endpoint we've the drag XXX And this was

slightly So better. it was

I last time, it was basis think continue over it think to quarter. that down. will And creep I XXX points

Bose George

basis that XXX for Titling or points, forward? Endpoint is that Sequoia and going is was Sequoia that the there And or Okay. Instant in with

Mark Seaton

So our instant purchase decisioning Sequoia ]. for automating [ transactions used purchase is transactions for that's

Bose George

the like I then much just And from not rest X/X report, sheet. of investment way think Perfect. how bank? at the bank's of is balance investment is breakout like like the the maybe contribution from your bank investment a your the just own that coming I it over bank looks versus mean, to about on Is to there income income. from through versus just the income the about call it When actually it Okay. looks switching to look

Mark Seaton

Yes. Give me one second here.

and our banks, the from mean, just onshore also majority came portfolio. deposits of it. offshore. just our are income $XX I income fixed third-party That's $XXX and is have really million from income quarter, is from we investment million it both The rest this too. the most insurance investment our escrow portfolio of our And bank. investment of that's of -- So we had that companies, that

Operator

Our Terry Barclays. next question of the comes Ma with from line

Terry Ma

year as guided a margin think So full 'XX similar full 'XX. I year to you for

As we down look of the at first kind ]. was performance of X% it kind [ X%, revenue in half,

a you guide? half less revenue that QX on like to a the sounds more to you're little a QX. It growth in optimistic on bit in see but do hit margin So reacceleration optimistic need little back

how wondering think just that. So about to

Mark Seaton

Yes.

margin the having We to single-digit about or growth. guide given for talked last So moderate low similar revenue that margins terms in of year. we've

So revenue relative last year. we'll have need margins which our that's current would what [ X%-ish to revenue similar half expectation to first. the -- ] in second the to we growth acceleration imply in some That's

Terry Ma

it. a in quarter, above Do from investment you I rest end. little was of Was mentioned high Warehouse of this then the there? that continue for And business. Got to Okay. income on the it anything the expect million the there some think year? $XXX episodic contribution you Lending the bit

Mark Seaton

mean, top because think we Yes. doing of little Warehouse a were great, business end than we will That's range good bit and of growing that the and our point. I a that's Lending the higher continue.

range. So investment And that like really benefit performance Lending Warehouse us caused we're really wasn't we be yes, than the It onetime have to stronger income an Lending. anything Warehouse that to there continue expected. to going was from just above from was

Terry Ma

Got it.

Okay.

coming an is $XXX adjustment So out. point just for quarter home guide million per mainly the

Mark Seaton

we QX, in exclusive in be reason little income, the in of rate. really be what's is a the investment then because will funds bit expected QX. point to And why think declines Fed Home down

Operator

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

John Campbell

orders, the mid-June, purchase then I'm down you down it's if curious in of how July. if orders week-to-week. of of June kind held Maybe been steady in you that's about look X% it's a curious far a drop open deceleration kind level. in if I'm or thus notable had just kind On the start and that

Mark Seaton

down week-to-week, the July, our in purchase So orders you look when first week X.X%. were

X.X%. X.X%. the were down third week, second we down were And week, The we

John Campbell

you earnings know the And or like helpful. interest. in back your have think you back you're the metric That's kind level to I earning in what income, call, of deposits Okay. out teens this the for the had the any not investment but called sense if so past? on investment then XX% Mark, if the upside you is that hand, don't I get that able of income to to of

Mark Seaton

me assumes talking in investment here, that quarter. I the on don't we've income that John. I'd million, that been really forecast is it's have that which here, -- this second what stays that here assumes $XXX But flat. well about XX% That number XX% that the say

we expect that's more that incentive. some of that on we that rates, guidance lower number funds these move we're to So until investment can income. doing upside to the if Fed XX% to falls, significantly don't have we margins But XX%, provide change with initiatives our on just

John Campbell

the I at guess it the offer . to rates, And edge competitive Is On your some have rate. a it. then to oversimplifying that diminishes of that competitors fair risk that ability Okay. say? maybe lower and of higher

Mark Seaton

right. That's

the about you're if talking banking -- for correct. For deposits], of direct [ the that's

John Campbell

on the Okay. think I July mentioned everything you Mark, rolled for me that off And X. one last home point basically then loans.

You the maybe is the quarter? was talk in fees, about in and impact, maybe another other. can I'm sizable to then there info offboarding the there if something thinking income to And if investment impact? you anything talked revenue but also

Mark Seaton

of fees ] other really be it that we you say, some, impact see charge to loans, minimis There'll won't I continues info de because to servicing would some [ grow. just and for ServiceMac the because

customers. new send to continue We

it's hit onetime see will million which will because really be QX. we fee won't to it But [ there that ] in a immaterial. collected about You going $X.X be deboard July,

Operator

from Our the of question comes Mark line of Truist Hughes next Securities.

Mark Hughes

the pilot have CFPB, might view of that if Any we update, a just kind project, I you would be get thing? of regulatory great. wonder updated could sort the

Kenneth DeGiorgio

out. of the I program, for a the I Waiver Title not last from the mean, update, think, proposal on probably is Thanks for quarter. Yes. There's the Fannie, question, lot Mark. request

legislators, like. I back and the the lot been on think from general a -- attorneys push there's state of

Fannie's particular. think I pressure But there. a to in be political of seen on coming there's remains think it I down So regulator, lot

prohibit CFPB, that not the passing With the on on insurance. mean cost is from information title out. should request whether their for they RFI I or lenders of

Our a and trade for bad group will transparency push lot to responding. increase this opinion I'll decrease that, other that of groups now consumers. our have There over probably years and is On trade are say been the And consumers. it to for I to us. transparency going like but think to end increase of be not day, at probably necessarily will wants consumers, ahead. the push bad CFPB the But it's to the feels cost it

In fact, go. it event I we us want might to a the program in enable should think perform actually in direction, us. CFPB be good have that to I for well lender that they centralized mean, strong the the goes

-- as we're And these but evolving carefully. So watching still. it's always, things

Operator

our question from of with comes Bhonsle next line the Soham And BTIG.

Soham Bhonsle

sounds I Warranty. in kind understand longer to the quickly of like Home strategic that you're just on continuing term. business, Ken, want for but to holding invest It rationale it

healthy title the and maybe to capital of space that to redeploy some so. you pretty in then this in potential between the the earlier in acquisition there's -- just pretty was maybe you business like or sort there theirs. guys that us your differences if that And of future, I Warranty and looks interested a harvest return and a to talk about maybe think sizable I cash Home keeps what multiple. put do some business But quarter, know choose into

Kenneth DeGiorgio

I settlement like with it probably our connection furthest a and Title is the Yes. from Thanks it. though in business clearly, is transactions. Home core business, purchase question. for But the know mean, we Warranty Settlement I

of market think I the questions, that under lot the a mean, to one penetrated. response is I dramatically for earlier reasons Home mentioned I Warranty of in the

seize a market. opportunity think that we real So to there's

mean, it that I construction. the sizable -- a now a ]. on mentioned, $XXX wasn't for On selling even deal was But business. new yes, home It really million home multiple primarily new into risk-taking [ warranties -- was was on you there company

to So that what it's warranty business. with typically our as companies compare company would home hard think of warranty and we home

Operator

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

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First American Financial (FAF) 25 Jul 242024 Q2 Earnings call transcript