First American Financial (FAF) 8 Feb 242023 Q4 Earnings call transcript

Greetings, and welcome to the First American Financial Corporation Fourth Quarter and Full Year 2023 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 13743995.

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

Good morning, everyone, and welcome to First American's Fourth Quarter and Year-End Earnings Conference Call for the year 2023.

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

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

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

in Thank the well Craig. occurred you, We ahead December. were a of in market challenging performing cybersecurity late incident that

to fourth incidents we systems while and quarter off-line elected disclosed, take the and results. impacted materially The As company's consequently, the financial previously situation. we assessed operations remediated our

impact not expect normal appear from have ongoing to do however, related levels, and demand product title significant we the incident. and to orders Our any returned

to inventory discovery will remain mortgages lower carry expect our prices price business. the headwinds will lack affordability Transactions as activity interest should given we and in Housing albeit commercial XXXX, existing persist. continues. to Refinance X%. increase most under rates challenging market at subdued for purchase market remain that also conditions Looking of

of growth revenue year, modest to rates. mortgage depending commercial expect in While path we and businesses this change both could the this residential see our on

Turning January with compared to XXXX. open January last are orders key year. levels XXX in orders consistent day, Purchase experienced markets. X% open year. up in throughout up orders Refinance compared in trends Commercial per with trough our averaged for with order open X% January over are last

our these of the some cybersecurity over While a spilled will ongoing December, assessment business. not incident support from impact on trends these orders significant our have that

and along of the sustained Despite at financial our the discipline invest key sheet capital returning uncertainty allow for us continue our to with the in of strong recovery our of a growth timing balance business, markets, strength while long-term to in of share year repurchase for to average We $XX repurchasing the our our total full $XX in the $XX.XX our million fourth remain shareholders. active per share. of million quarter program, of for a price shares an

normal I and as the the our acknowledge incident. closing, and to significant by operations. participants also patience support to provided we agents want customers cybersecurity our process of other In industry I the demonstrated through during work returning appreciate our customers,

restore their of In incident cybersecurity the to The this we the to highlighted and dedication I addition, underscores incredible customers of systems. consistently principle. resilience our response the demonstrated success serve our have gradually people in our efforts they importance and appreciate to our business. tireless

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

you, Thank Ken.

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

claimed. These purchase-related tax of credits million share, earnings net tax which research Our or was $X.XX losses investment $X benefits development due $X.XX. include of results to per share, amortization adjusted impact the we per excludes primarily and and

impacted this earnings As quarter disclosed, were the incident. our by materially previously cybersecurity

other revenue incident impact exact from while providers, our were segment, unknowable. others is XXXX. transitioned title our to results the In into delayed were on had the certain However, transactions

December to November produced October share. we adjusted tax rate $X an prior of forecast internal December for This taken per XX%. estimating to are EPS forecast a our offline, for being actual be and results On and XX, forecast systems our includes our

benefit was EPS adjusted $X.XX, actual including the internal to Our $X.XX our relative $X.XX a implying tax estimate. shortfall

we related of most believe this Although the cyber is difference incident. to

be segment. As do related last impact significant was results was ultimately too year. outlook shortfall direct It the fourth the Included of to to Commercial tell how early of incident $XXX exact our had decline in Revenue on much our quarter the covered first segment. for of how this $X.X unknowable. this shortfall quarter or I mentioned, incident billion, impact the title million company's a We the be XX% expenses $X.XX will much our compared XX% insurance incident by to not the $XX quarter on same in is XXXX. over the a in believe corporate with down program. million, was revenue our will recouped will is have XXXX Turning

the the a driven Refinance revenue relative partially average and XX% by soften. for revenue average order to down fewer revenue of $XX,XXX as quarter, quarter was closed, combination XX% during Purchase year. Our due offset by X% commercial decrease revenue large declined XX% valuations of prices number transactions lower a transactions a the XX% in increase declined this to per the in orders to last per commercial in markets order.

mortgage above the activity. significant refinancing rates fallen to Although XXX a in are needed recent basis generate highs, what still is rise materially have levels from there points

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

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

decline million, information Our business. for year. data company information last primarily the relative to XX% was products due and to $XXX revenues This direct our property were demand title reduced down other in and

million, and Title offset the the lower unchanged within by segment $XXX year relative rates income Investment interest higher escrow to prior was Insurance as Services were balances.

raised rates as times. X Fed XXXX, year full the investment of surged our the income For we saw XX%

the point Fed funds we the Now of for XX depending prepares rate, as the lower basis investment cash annualized in million and but level our $XX amount will to will balances. decline escrow on rates, Fed each income decline ultimate fluctuate estimate the that

policy losses and for million and ultimate release in X.X% premiums fourth for an current fees, rate prior rate the title in $X The or X.X% policy loss from the loss $XX escrow of provision year. X.X% provision rate of an the the years. other was down claims year prior with for The X.XX% reflects million loss quarter

several purchase quarters, transactions. have decisioning strategic related last margin the for the title and drag three highlighted the instant Over ServiceMac, Endpoint to in segment we initiatives:

of the pretax margin company this the only ServiceMac by ServiceMac no quarter, improvement drag. basis purchase significant our including XXXX. And margin commentary have was Therefore, Endpoint earnings title acquired We seen October segment in the line Title of margin transactions. with decision since and in longer these results XXX strategic two pretax we for ServiceMac in are instant points. our and segment we our removing in initiatives Together, and from overall reduced

X.X% Pretax XXXX, deferred $XX title an $X warranty was our revenue X.X% In million. in Total compared favorable adjustment basis. X% last recognized or margin the adjusted of year. on in with decline we totaled million, a segment home revenue a business

will $XX the XX% in in frequency home business loss down lower Pretax home XX% Adjusted Excluding home prior income normalized tax primarily claims. this down driven from was in XX.X%, quarter. warranty was credits margins during to to warranty due tax and year. X% adjustment, than warranty XX%, pretax effective in million, revenue was home of recognized of ratio in XX.X% flat was XXXX, the up for the rate last XXXX. be segment warranty our in our quarter the from by and The relative tax Lower severity research development from year. rate The XX.X%. we

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

debt-to-capital Our debt-to-capital secured XX.X%. of as financings was our payable, XX.X%, was December excluding ratio ratio XX

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

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

is XXXX, a little margin out commercial of terms purchase. maybe you margin a better. expectation bit we And for 'XX? in modest think as improvement a of 'XX of have if your gets where your little do Like kind shakes the noted, NII MBA everything right, versus terms worse. you In in in

growth. There's question, news lot a some and the feel the not talk about we be the and there'll MBA is maybe modest quite as like of factors, feel Bose. good we growth obviously. commercial modest core we perhaps suggesting, do business, have I mean we'll like purchase, do for Thanks our much but as in

we like feel rate X% is sustainable our also that see what now. we this booked can from loss We quarter

be should tailwind. that of a bit little So a

how time our just we're have investment starts of downside for to lower annualized talked the rates, my script to Fed to and next here, impact if lowers every is $XX that's an lose defense I rates. investment income. on million year going going to The

that out. well. in are 'XX we'll So headwind. double-digit what at in our double-digit they feel have But like going this But like right margins would we we can we were look feel year. XXXX, plays in now, be as had see to everything, margin we similar 'XX to be margins to as how very hit that a We

just Okay, actually, What lot was a then And up that? the to the I helpful. balance in wanted went great. driving ask quarter. That's cash

a and the third-party that held cash. we Typically, bank the of was that incidents. didn't push cash a bank. our quite our do a It that third-party we just out of We out hold banks to was have typically ability just of function to year. We of banks, with but push incident-related it we much had lot time to it in lot would at really cash because wouldn't we it

year-over-year? Do be to balances one different? And reason then Okay. will escrow And actually roughly flat the be Great. it NII. will think be -- you any think on will more

balance commercial say Well, they is really I that business. track we would think -- our

XXXX be So our in commercial related. I that escrow balances of about they should up modestly say are roughly would XX% at

So they're going track to commercial. really

have think a improvement we to in is have well. modest as balances So modest escrow going improvement we our commercial should

from comes Terry Barclays. question with next Ma Our

basis throughout provide you on Endpoint year. the instant drag So of any on point how the there from margin is and trends XXX kind color that decision, can

I by it think XX basis about with abating quarter. of ServiceMac, been kind a had points

We think year. it's improve going to the throughout

And transactions we better. are about those feel we now. and results to been have instant a roll going going endpoint as get expenses, few they're like better up year and think to We've we out purchase this improved, Our quarters decisioning for for ramp that. talking

a will less think be I it experiencing get improve end of a the probably we but it will XXX but we're bit, than so little basis points still drag even that. year, as And the to

guess, where the on Is based is provide And Got any then now? just more color on investment forward Okay. it. income. there, the you curve can I right

the Well, when yesterday, think, had forward X decreases. checked I we curve, rate

on effect an have really wouldn't which December, in us. be would those of One

mean, again I I so we is look come time the in lose to every million investment would title Fed And at segment. just going -- internally, guidance the our of $XX we're that cuts,

cut investment if income. wouldn't the income again that but next which have so given more wouldn't Fed hit, is of we'd going sort million lose annualized out to Xx, in the you an $XX guidance of of December, And effect investment obviously, can year, model provided. on really That all those we've

Soham with from comes question Bhonsle next BTIG. Our

this a thinking any incident Just have through should the any shore with about? that be about here. that I on up that talked be thinking takes make systems the margin. the would sort there or puts of any you guess is should your maybe to of investment cyber additional we But, some CapEx and follow-up to year of you we

I in terms to year. -- of say CapEx next specifically, that going CapEx our we're down is just would come

and So and CapEx of XX% year. had million will XXXX, we XX% it down in between come somewhere next $XXX

than which in that is can us work because we've a is that more no is Some the We're CapEx. engineers for efficiently of opposed to the parties, things longer Other on need. feel have some because do like hiring past. of third saving finished decline as lot we of we us more parts do projects just to we we using

next we despite next a some, XX% going So that's program, year. say, not is XX%. enhancements material around to CapEx to information need but come our I'd security to somewhere to make our earnings to down going impact CapEx year, on it's And or have

it. Got

should Okay. here? subservicing investment just sort line And income an the I that your year? potentially How the update about through can think roll of the of get then assets impacting off we on

exactly be unclear loans. So income point we've investment home these But have But those out the expense now, to interest to when would expectation going not it's from about in material our say is impact, talked mid-year. loans, past, one loans. also certainly loans we generate our leave. in Right home somewhere that is I in those the point because that, thing income a again, they is would we pay will investment

not you'll but it's right even on a going at midyear, But circumstances. -- all. But if change to interest it's to we expense. expectation significant those that have interest for depending going question, So lost and we not them, see pretax could to on income to from fluctuations is perspective, answer the now, hold your be

it. just Got And then one. last

having Mark, was I bring of sort guess guys look, million than you're have of hearing folks of of bank bank folks likes you some Are agent and the that business in that in a better banks movement seen of other I think to NYCB some talked million you trying guys. seeing behavior these the I or historically York, the market any to is with come specifically? issues. sort have any $XX discernible like you maybe you're about, $XX sort market you you to and just of New where because in wondering, sort

agent talking You're like our banking deposits about industry. for

Yes.

a are year, had started real deposits $XXX we the deposits here. to referring We I say basically long on agent of we haven't million the we for issues we But big you're 'XX, agent of just positive influx because that banking. At term, the had $XXX banking. of deposits. seen million of would end of When in January in

billion, base, I more a growing is bit bank little right? $XXX we growth. It's to a very got optimistic So feel mean, We base but material, just $X we're very we're market deposit million time really of just it about like the product execute. a nicely. need we've On small a from fit, good

and we're because troubles growth mostly because any of isn't to it's very clients. So any a but banking provide optimistic, product our that can really other the agent service bank, of we're we seeing efficient

Instructions] Truist Securities. with next [Operator Mark Our Hughes question comes from

for outlook on the thoughts capital Any management XXXX?

feel would of Capital components And management, the is different just we talked lasts, these more about we I think And thought calls. when market about acquisition But of really the like have have we've a on it. bit would One there's we a kind M&A as will couple would been longer that malaise be. robust it the fell. market opportunities M&A. the pipeline hasn't, more this little say

the buyback, in always always I at So been very be X the that last look will something we'll buyback we X at. mean, we've terms and of or in active look the years, that's something that

capital, is At the excess have end we of for we and it we've the feel uses buy like capital, we'll stock back. undervalued day, the if don't got better

course, water, that's raising always to to raised And dividend hell something continue dividend. to year And then every much We're the pretty to we so continue we do. high of or want evaluate. not committed but we'll and dividend, come that's the have something

the looking to cycle So can. put trough of is it the to we sheet balance really and a here, actively we've the fortunate at where got work part good that we're

try it you've that too up but cut mentioned to X%. purchase to commercial January the up not then X%, finely, And

suggested December. you think from some could I there be spillover

at recent If the maybe us? January you difference to trends, you those February, of numbers late any or look do early you relative see gave kind

through went Yes, as it weeks, of I larger on in But the week out the some good probably where numbers spillover. suggest, yes, we tailed off pretty in the some which think and the you uptick saw first was a January. January came about whole, there early think feel the I we month,

the guess else. shift I somewhere Well, they didn't order Yes. immediately

well. So spillover as has some meaning

Yes.

Stephens. question next comes John from with Our Campbell

cyber of prepared it's size fully you the remarks, So to impact impossible the highlighted exact Mark, your incident. that in

to get I moving for that's least lot Obviously, visible understandable. if we I'm on parts at a there, color little of going but definitely see more think you can a bit guys. was what

XQ the got mentioned out maybe called impact out that the you -- just maybe $XX of else it's sense had pulled orders as as what just maybe you you Do far that you but pushed visible, from broadly So and that expense, degree was for the into million to mix what you have it's any is standpoint? guys, went what the or like orders rough competitors.

I December send to us open It's as difficult. weeks the have Yes. them certainly, us extremely our were we opened somewhere maybe tell. some the systems online. of It's might back with in been might really last of got again, as though, the couple and orders have soon mean impossible orders some to that of spillover, which else, holding saw they

that many us end things moved Those to I us either with now. customer in December orders. mind, them and in is think closed issue the we now. those have real where the at that's us orders move our keep of But the would are instances, behind behind or

we're And lot of on got. into the of we them think in I So be commercial a of and if the the of frames, orders they or them, the of those realize ordinary them refi and ordinary a again, a focused January not all orders purchase not benefit we'll course, order. spilled over time are

expense makes wanted sensitivity guess, sense. XX then, or sensitivity you every latest point And Mark, offset. see your on could on give I $XX rule I maybe if of million us That income, mentioned to the thumb Okay. a investment the to basis cut. the you interest

So $XX in offset be much for expense? every how you million, interest to would able

investment interest can say rule to the we of high-level good point income, But expense of income, dollar we if first going the tighten I for on is. -- the purposes. a that's of much thumb lose of it investment that's lose would lose the investment it's level I something mix mean about because That's are some A up. we we of depends the our If all, $X.XX interest we'll how lose the lot of versus -- is use coming nonbank. But bank would maybe what modeling of might a from, where lot use. rule high income I expense. kind that's

Okay.

Okay. more in And here. then if I one squeeze could

On the success ratio.

I so lapping this weaker talked think Obviously, in similar you quarter. be of or kind maybe guys XXXX. XX% you will to had

For next maybe year, appear investments. going bit the you're out losses to of little have of a

You've if still whether will investment like a talk you of but kind that you target you income, impact to? manage could obviously maybe that's feel some got from to

modest But when mean, I managing the success ratio. John, ratio mind level. still definitely we're absolutely no, is though, in meaningful. success to about we're that less to XX% managing growth, XX%, talk the we Keep revenue

And follow John, your I first just want on question. to up

every So of mean when $X.XX for in outstanding. are we bonds That's expense said I have investment our dollar lose interest title we obviously, segment, the expense. of segment only. interest income, the the our corporate that from I

title So was my segment for commentary only.

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

first remaining automated title margin? your on My with the both end how point do to insight respect that into -- line you the drag is . and a remaining initiatives those time of or question have much

I Well, going mean, it's forever. mean I I to don't think not last

days -- the the over gradually to decrease Mark time to harder XXXX we those it decrease, realize going but scope the ramp while to think will but for And of it in -- years. a come year early start of starting increase endpoint fairly over is are benefits probably very was couple the down days. over early And couple was thing predict, that much to I the next initiative, the expenses would over losses is and next modestly drag mentioned, to peak anticipate, I again, instant as purchase think That decisioning Endpoint. of going probably until modest, expense will think transactions, I time of that. on are that the I those up, years. with whole the Endpoint on it's On of

question. a more And then sorry, macro

I on aggressive -- maybe sounded thought was their the think you forecast. MBA you it like a bit

forecast? you than are where looks we -- of and and of more 'XX maybe go more cautious? are the cuts, in more interested or Or you does X into 'XX. your looking range maybe And Fannie in 'XX like for As in the year you 'XX, the it positioning scenario the -- I'm late X particularly somewhere MBA company see the but thoughts 'XX like to like

'XX Well, I look 'XX. a better lot think going 'XX than is and to

as guess 'XX I I a year. So view transition

get a GSEs MBA well. So -- probably coming them. see are little But setting And do yes, that We XXXX. we growth. pretty if of up transition as the cuts a we I modest a optimistic. light as the we for see X the even curve earlier, we think revenue is again, forward as We're optimistic us great we we I 'XX think the little think get probably see less, a year. or mentioned rate X if or in it's expects And

Mark from comes question . Bank. next Deutsche Our DeVries with

incident. kind in flow the expect pointed Mark, One premiums? more about we the agent Should through to reporting you as in a question for of you channel. see of impact out, the lag cybersecurity that not agent there's XQ to

be no will We going just say have it's at There's material the quarter. about it's that definitely in first trickles to wouldn't -- that, I not it's over some question all. material. but

will get couldn't we the there that last just be remit So agents the two or like our week year. because of remittances

now. in and QX. it slow And won't But material be -- agent so for remittances those getting anyways, it's typically, it's just time a we're fairly

comfort any kind regulatory And there was conversations to of Fair just be about will context impact share about discuss hoping a a around of kind of And gives in there? inquiries what the Okay. what of Is then and you're or get incident. you your I just to from bit frequency significant fixed identify enough. anything ongoing little of systems the doing or kind vulnerabilities kind it? nature efforts can more you also that there

thing customers. or we saw, in, think back I January. to first is of counts kind getting no the order feedback the the then orders the And come normal just, our impact saw ongoing mean all, from in we gotten I about Yes. big of we've

becoming in things the competitors types and have age, think with seen these more And large, unfortunately, day by and I put them. in more this as that are and we've participants indicated industry. of they behind the other customers commonplace and incident our

intent Obviously, the regulatory information But there's live don't because when probably coming to never I of regulators. class. you have like was our potential this, have know with program but but regulators, litigation. don't again, anticipate security best out really or in an anticipate, I inquiries you fines and

lawyers Now anticipate material. also are mitigate out have always in in obviously, I that be of well. the different. They program, that layer of plaintiff the well this. as which come of woodwork like cyber I we don't insurance some help that And those would impact as any But instances would a fairly of expenses robust would

And That's then follow-up Okay. helpful. last that just point. one on last

I you can if get -- for sense what recoveries look those you give us is there might any insurance -- think like? you do Mark,

sorry, Can repeat the question? broke there. I'm you up Mark, you

Yes.

there can you insurance if those you is sense and us might the what Just any receive for -- recoveries give like? look what them

have million QX. booked that we $X we a in deductible Well,

But are hit incident. those terms in long to of them that related we the see as in the have expenses won't we'll feel P&L. as XXXX probable so And then we hit like recoveries,

in in QX. kind any So booked the like of of it the significant don't see P&L we we incident was all because of terms feel in impact XXXX

comes question with next BTIG. from Our Bhonsle Soham

just on up on 'XX. quickly your margins I Mark, follow to wanted for comment

digits be could range it's that something said pretty you along digits. wide think a low going similar also double but 'XX, be you lines I the to to I said low mean then there. So double

this put a of for you there maybe year? little finer point bit could So just

'XX margin adjusted title X.X%. in our in was Well,

call our gave I So all 'XX, margins it's margin. a I like, so mean given the -- it, more earlier is in commentary XX%

originations lot do XX%. to Now going to up listen, than is if the that. better XX% and MBA a are We're right

kind running it trough mean in we're historical more a good I is efficiently cycle XX% of pretty So we've margin to us business, our in have. got standards. ever the here for given and more we than scale have

So -- that in still XXXX, modest if at be we improvement range. again, we'll just XX% see we

to of right, the XX% mid-singles to if versus way should XX% we it? think up So volumes of think about sort that sort XX%. about are Is a right like

be Yes. I'd mid-single a will say to low digits XX%.

a year. of there's but early that's expectation the in our lot this obviously, pieces, Now moving

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

The today's conference This company thank you your concludes for call. like would to participation.

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