NYSE:FAF First American Financial Q1 2024 Earnings Report $60.98 -1.62 (-2.59%) Closing price 04/25/2025 03:59 PM EasternExtended Trading$60.93 -0.05 (-0.08%) As of 04/25/2025 04:05 PM Eastern Extended trading is trading that happens on electronic markets outside of regular trading hours. This is a fair market value extended hours price provided by Polygon.io. Learn more. Earnings HistoryForecast First American Financial EPS ResultsActual EPS$0.45Consensus EPS $0.67Beat/MissMissed by -$0.22One Year Ago EPS$0.49First American Financial Revenue ResultsActual Revenue$1.42 billionExpected Revenue$1.42 billionBeat/MissBeat by +$7.23 millionYoY Revenue Growth-1.50%First American Financial Announcement DetailsQuarterQ1 2024Date4/25/2024TimeAfter Market ClosesConference Call DateThursday, April 25, 2024Conference Call Time11:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Quarterly Report (10-Q)Earnings HistoryCompany ProfilePowered by First American Financial Q1 2024 Earnings Call TranscriptProvided by QuartrApril 25, 2024 ShareLink copied to clipboard.There are 9 speakers on the call. Operator00:00:00Greetings, and welcome to the First American Financial Corporation First 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. A copy of today's press release is available on First American's website at www.firstam.com/investor. Please note that this 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 137 45815. Operator00:00:48And we will now turn the call over to Craig Barberio, Vice President, Investor Relations to make an introductory statement. Speaker 100:00:57Thank you, operator. Good morning, everyone, and welcome to First American's earnings conference call for the Q1 of 2024. Joining us today on the call will be our Chief Executive Officer, Ken DiGiorgio and Mark Seaton, Executive Vice President and Chief Financial Officer. Some of the statements made today may contain forward looking statements that do not relate strictly to historical or current facts. These forward looking statements speak only as of the date they are made, and the company does not undertake to update forward looking statements to reflect circumstances or events that occur after the date the forward looking statements are made. Speaker 100:01:33Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward looking statements. For more information on these risks and uncertainties, please refer to yesterday's earnings release and the risk factors discussed on our Form 10 ks and subsequent SEC filings. Our presentation today contains certain non GAAP financial measures that we believe provide additional insight into the operational efficiency and performance of the company relative to earlier periods and relative to the company's competitors. For more details on these non GAAP financial measures, including presentation with and reconciliation to the most directly comparable GAAP financials, please refer to yesterday's earnings release, which is available on our website at www.firstam.com. I will now turn the call over to Ken DiGiorgio. Speaker 200:02:28Thank you, Craig. Market conditions in the real estate and mortgage industries continued to be a challenge in the seasonally weak Q1. Elevated mortgage rates and low, albeit growing inventory levels have caused transaction volumes to remain near historically low levels. During this period, we've maintained our focus on managing operating expenses, while continuing to invest in long term strategic initiatives such as expanding our title plant assets and building technology solutions to increase efficiency, reduce risk and enhance our customers' experience. Although our financial results this quarter were a function of the tough mortgage origination market, we have recently started to see signs of a measured recovery. Speaker 200:03:18In March, our open resale orders per day were up 5% and that positive trend has continued so far in April with open resale orders up 2%. Growth in our resale orders so far this year is the first positive change we've seen in this key market since June of 2021. We are also seeing improvement in our commercial business with open orders up 1% in the 1st quarter and we have seen further growth in April with open orders up 5%. Our home warranty segment had another strong quarter delivering a pre tax margin of 19% and is positioned well for future growth. On our last earnings call, we stated that we expect revenue growth this year and that we can achieve title margins similar to what we posted in 2023. Speaker 200:04:13After closing the books on the Q1 and looking at the order pipeline in April, our expectations remain unchanged. I'd like to take a moment to address the recent attention our industry has received from Washington DC. This attention is the product of a broader effort, an effort which all of us at First American wholeheartedly support to make the purchase of a home more affordable. The focus on our industry as part of this effort reveals, however, that as an industry, we need to do a better job educating policymakers and other stakeholders about the critical role title insurance plays in protecting people's investments in their homes, which are the primary vehicle for wealth creation for a majority of Americans. This role includes not only paying claims when they arise, but also the extensive work we do to correct title defects before the transaction closes, The cost of which is not reflected in our industry's claims rate. Speaker 200:05:16This important curative work protects consumers and lenders among others from 100 of 1,000,000,000 of dollars of title risk exposure per year. Moreover, title and settlement fees are among the smallest cost components over the life of a mortgage and as a result are not a barrier to homeownership. The discussions in Washington are still in early stages and we believe that ultimately our industry will be successful in reaffirming the value of title insurance to policymakers. But irrespective, we are uniquely positioned to meet the demands of an evolving market because of our growing leadership in title data, which is fueled by our proprietary data extraction technology, our national closing platform and deep distribution relationships, our extensive underwriting expertise, our commitment to and continued investment in cutting edge technology such as endpoint, our digital settlement platform and automated underwriting for purchase transactions and most importantly, our world class workforce and culture, which recently resulted in our recognition as one of the 100 Best Companies to Work For by Great Place to Work and Fortune Magazine for the 9th consecutive year. Though we are the leader in the digital transformation of our industry, fundamentally we are a people business and it is the quality, talent and dedication of our people that ensure our company's long term success. Speaker 200:06:54Now I'd like to turn the call over to Mark for a more detailed discussion of our financial results. Speaker 300:07:00Thank you, Ken. This quarter, we generated earnings of $0.45 per diluted share. Our adjusted earnings per share, which excludes the impact of net investment gains and purchase related amortization, was the same as our GAAP earnings at $0.45 per share, as $0.07 of realized gains were offset by $0.07 of purchase related amortization. Turning to our title segment, revenue was $1,300,000,000 down 2% compared with the same quarter of 2023. Purchase revenue was up 2% during the quarter, driven by a 2% increase in the average revenue per order. Speaker 300:07:40Commercial revenue was $143,000,000 a 4% decline over last year. Though our closed commercial orders fell 4 percent, the average revenue per order for commercial transactions increased 1%. Refinance revenue declined 13% relative to last year. With mortgage rates hovering around 7%, they are still at levels materially above what is needed to generate a significant rise in refinance activity. In the agency business, revenue was $564,000,000 down 5% from last year. Speaker 300:08:14Given the reporting lag in agent revenues approximately 1 quarter, these results primarily reflect remittances related to Q4 economic activity. Our information and other revenues were $217,000,000 down 2% relative to last year. This decline was primarily due to an increase in the capture rate of title premiums from an affiliated title agent, which caused a decline in information and other revenue and a comparable increase to direct premium and escrow fees. Investment income within the Title Insurance and Services segment was $117,000,000 down $8,000,000 relative to the prior year due to lower average interest bearing balances in the company's escrow and tax deferred property exchange business that were partly offset by higher interest income from the company's warehouse lending business. The provision for policy losses and other claims was $29,000,000 in the Q1 or 3.0% of title premiums and escrow fees, down from the 3.5% loss provision rate in the prior year. Speaker 300:09:18The 3.0% loss rate reflects an ultimate loss rate of 3.75% for the current year with a $7,000,000 release from prior policy years. Over the last several quarters, we have highlighted the margin drag in the title segment related to both endpoint and instant decisioning for purchase transactions. Together, these two strategic initiatives reduced our pretax margin in the title segment by 150 basis points this quarter. Pretax margin in the title segment was 5.5% or 4.8% on an adjusted basis. These margins reflect a $6,200,000 write off of uncollectible balances impacting the margins by 50 basis points. Speaker 300:10:01Total revenue in our Home Warranty business totaled $105,000,000 a 1% increase compared with last year. Pre tax income in Home Warranty was $20,000,000 up 28% from the prior year. The loss ratio in Home Warranty was 42%, down from 47% in 2023, driven by lower frequency and severity of claims. Adjusted pre tax margin in the Home Warranty segment was 18.8%, up from 15.2% in 2023. The effective tax rate for the quarter was 19.9%, lower than our normalized rate of 24%, due primarily to research and development tax credits recognized during the quarter. Speaker 300:10:43In the Q1, we repurchased 58,600 shares for a total of $3,500,000 at an average price of $59.37 Our debt to capital ratio as of March 31 was 30.3%. Excluding secured financings payable, our debt to capital ratio was 22.5%. Now I would like to turn the call back over to the operator to take your questions. Operator00:11:09Thank you. We will now be conducting a question and answer And the first question comes from the line of Bose George with KBW. Please proceed with your question. Speaker 400:11:40Hey, everyone. Good morning. I wanted to first ask just about investment income. I mean, Mark, you noted that reduction year over year was on lower escrow and I think on tenthirty one balances. Can you just dig into some of the drivers of that? Speaker 300:11:54Sure, Bose. So one of the things we've seen here as interest rates have risen is that more of our customers are liking to earn interest on their escrow deposits. We have 2 I'm simplifying here, but we have 2 basic types of deposits, savings deposits and checking deposits. And more of our customers are electing for savings deposits. And in itself, that should really have an impact on our investment income because one of the advantages that we have is we can monetize savings deposits when a lot of our peers can't because of our bank. Speaker 300:12:28But the second dynamic that's happening in addition to the shift to savings deposits is that more of those savings deposits are going to 3rd party banks as opposed to our own bank First American Trust. A lot of it's related to economic reasons because third party banks will pay higher rates than First American Trust. And so if we have a higher mix of our deposits at 3rd party banks, we can't earn interest on those. So when you look at the total mix of deposits that we don't earn interest on today, it's 30%, a year ago it was 18%. So that mix shift has been a little bit of a headwind for us for investment income. Speaker 300:13:06And then the second factor, of course, is just the 1031 businesses volumes are lower today than they were a year ago. Speaker 400:13:14Okay. Yes, great. That's helpful. And just to be clear, is it the commercial customers who have the ability kind of direct that escrow versus residential? Or how does that work? Speaker 300:13:26Everybody has the ability to do it, whether you're a a consumer or large commercial client, you have the ability to request a savings account, but typically commercial customers are the ones that really drive that trend. Speaker 400:13:40Okay, great. And then just in terms of sort of expectations for that investment income line item for the remainder of the year, can you just talk about that? Speaker 300:13:50Yes, sure. So when we look out the next couple of quarters, we think our investment income in the title segment will be somewhere between $120,000,000 $125,000,000 per quarter. We'll probably be at the higher end of that range in Q2 and a little bit lower as the year goes on in that range. And that assumes a couple of things. One, just the normal seasonality of the business. Speaker 300:14:15Typically, Q1 is kind of low point in terms of investment income just because escrow balances are lower there. The second thing is, we have our we've talked about these HomePoint balances and we expect the HomePoint balances to leave somewhere around Q2. So that assumes that HomePoint balances will leave. That's going to be about $20,000,000 of annualized investment income. And by the way, it's also going to be about $20,000,000 of annualized interest expense. Speaker 300:14:44So it sort of washes on a net basis. But if you're just looking at our investment income, it will go down about $5,000,000 a quarter once we lose those balances. And the third thing it assumes is just 2 Fed rate cuts. Now I know I was looking at it this morning and that market is assuming 1 Fed rate cut, but we had 2 Fed rate cuts at the end of the year. So when you mix that all together, we think we should be somewhere between $120,000,000 $125,000,000 per quarter in the title segment. Speaker 400:15:10Okay, great. Thank you. Speaker 300:15:12Thanks, Will. Operator00:15:15And the next question comes from the line of Terry Ma with Barclays. Please proceed with your question. Speaker 500:15:21Hey, thanks. Good morning. Can you maybe just speak at a high level about your confidence level in achieving the revenue growth and margin guide? It's a pretty uncertain macro interest rate outlook. Speaker 200:15:34Yes, Terry. Thanks for the question. This is Ken. Yes, I mean, listen, we think that the challenging conditions will persist for the year. Though we think 2024 will be slightly better. Speaker 200:15:49And I think we have a high degree of confidence in that. But again, I want to emphasize this slightly better. And we look at things like the commercial business, while it was weak in the Q1, We're seeing open orders as we mentioned up 1% in the quarter, up 5% in April so far. In the commercial business, our ARPA, while it had the typical seasonal decline, it is up 1% over the prior year, which suggests that maybe the price discovery has concluded or is at least well along the way. And I noted that there was an article in the Wall Street Journal earlier this week about Blackstone thinks that commercial real estate has hit bottom and obviously they have their finger on the pulse of the commercial real estate market. Speaker 200:16:34So that gives us some confidence on the commercial market. On the purchase market, affordability will continue to be a challenge with mortgage rates, prices, low supply. But we are seeing some green shoots there with, as I had mentioned, open resale orders up 5 2024 will be better than 2023, but it isn't going to be meaningfully better. Speaker 500:17:12Got it. That's helpful color. And then my second question, just on the margin drag from endpoint and Instant Vision. I think you said it was 150 basis points this quarter. I think you guys quoted 130 last quarter. Speaker 500:17:25So what drove the delta? And how should we think about that drag kind of evolving throughout the rest of the Speaker 300:17:33year? Really what drove the drag was we had a little bit less revenue at Endpoint and a little bit more expenses at both endpoint and kind of our instant decisioning for purchase transactions. We're making a lot of progress with both. With the drag should be less going forward just because of Q1 is typically the lowest revenue. So just the fact that our revenue at the title segment is going to improve from here on out. Speaker 300:18:01That's just because of the math is going to reduce the Speaker 600:18:04drag from here on out. Speaker 500:18:07Got it. That makes sense. Thank you. Speaker 600:18:09Thanks, Jerry. Operator00:18:12And the next question comes from the line of Soham Bansal with BTIG. Please proceed with your question. Speaker 700:18:18Hey, good morning guys. Hope you're all doing well. Mark, I just want to dig a little bit on the margin guide. So if I sort of take what you're implying, right, sort of flattish margins for this year, that would imply margins for every quarter sort of going forward are just, I guess, higher from last year to hit that double digit margin. So can you just walk us through some of the moving parts? Speaker 700:18:42I think you just mentioned some of the drag stuff, but like can you just a little bit more detail there would be helpful? Speaker 300:18:50Yes, sure. So just with our margin outlook, there's a few things going on. I mean, just to reiterate, I mean, we think that the margins will be comparable to last year. It's still early in the year. There's still a lot of things that are moving around. Speaker 300:19:06On the positive side, we've got we're off the bottom now. We just talked about this. We've got open orders up and that's going to bode well for later in the year. So we finally feel like after 2 years of having negative growth, we're bumping up off the bottom and we're going to expect growth in our core businesses in purchasing commercial. We've got tailwinds with respect to the loss rate. Speaker 300:19:28We've got tailwinds with respect to a lot of the cost cutting efforts we did last year. And then we got headwinds. We've got we're going to have about $20,000,000 more of depreciation this year because of some of the capital expenditures we've made in the past and some of these projects are going live. So that's going to be a headwind. Some of our benefits and 401 matches and things like that kind of get reset. Speaker 300:19:51And then we just talked about earlier on the call how we have some headwinds for investment income. So I think that for the I think the second quarter is going to be tough to beat where we were a year ago, but we expect that the margins second half of the year will be kind of better than we had last year. And when you mix that all together, we should be in line with last year. Speaker 700:20:13Okay, got it. And then just on investment income, so you sort of noted non interest bearing deposits moving out of FHA trust to third party banks. Should we I guess in the guide that you gave the $120,000,000 I believe, are you sort of baking in a continuation of that? Or do you sort of see more normalization there after this quarter? Speaker 300:20:39Yes, thanks for that. First of all, their interest bearing accounts are going to these 3rd parties. I just want to correct that. And in our guide here, we don't we assume that 30% mix stayed the same. So that's a risk. Speaker 300:20:54I mean, if the 30% keeps climbing, I mean, that's going to be a risk to our $120,000,000 to $125,000,000 guide. But we also are kind of in the very early stages of coming up with plans to kind of reverse that trend by paying more at the bank. So I think assuming a 30% mix of 3rd party is a reasonable assumption, but it could go higher and lower depending on what happens in the market. Speaker 600:21:20Okay. Thanks, guys. Thank you. Speaker 700:21:25Thank Operator00:21:42Our next question comes from the line of Mark Hughes with Chivas Securities. Please proceed with your question. Speaker 800:21:48Yes, thank you. Good morning. Good morning. Any more detail you can discuss on potential regulatory changes if buyers are not required to purchase the title insurance, but it's bundled in with the mortgage. How do you view that as a competitive evolution in the business? Speaker 200:22:17Yes. I assume you're talking about, Mark, the CFPB request for information for prohibiting lenders from passing through the cost of title. I mean this has been this was tried before by HUD and it didn't get off the ground. I think probably a big reason for that and I think it will be a big reason for why it probably won't get off the ground this time around either is the lack of transparency. So I think policymakers prefer that borrowers know exactly what they're paying for, because ultimately borrowers will still pay for lenders title insurance policy that will just be wrapped up into the interest rate or loan level price adjustments or what have you. Speaker 200:23:00So I don't think ultimately it will take off. But if it does, I think the value proposition of title insurance to lenders is well established. And I think, again, we have to keep a close eye on developments, but I don't think it will ultimately have a significant impact on the lender side of our title insurance business or the industry for that matter. Speaker 800:23:29Thank you for that. The commercial ARPU you suggested that was an indication of the price discovery is progressing. Was there a mix shift as part of that, bigger deals started happening because of the price discovery? Is that the idea? Speaker 300:23:53Yes. The bigger deals are always a component that we look at. We had 4, what we call mega deals with premium over $1,000,000 in the most recent quarter. So that always has an effect on the commercial ARPU. But as a general statement, we think that after again, after seeing declines in commercial ARPU for several quarters now, it's finally leveled off, which is a good sign, kind of mirrors the bottom end we've seen on the residential side. Speaker 800:24:23Yes. And then purchase ARPU, this wasn't much movement, but last quarter it was up 4, this quarter up 2. Any detail on that? Was that just a geographic mix shift? What do you see there? Speaker 300:24:44It's kind of what we think. I mean, there's 2 things to drive it. 1 is housing prices. Housing prices are still rising. I think given the fact that where housing prices are, the increase in housing prices, we would expect kind of a 2% fee per file. Speaker 300:25:00The other thing that can drive it depending on the quarter is just the mix. I mean, if we get a lot more business in California, which has a higher fee per file, that could drive things. But really, it's more a function of where housing prices are. Speaker 600:25:14Thank you. Speaker 300:25:16Thanks a lot, Mark. Operator00:25:19And our next question comes from the line of John Campbell with Stephens. Please proceed with your question. Speaker 600:25:24Hi, good morning. Just back to the transition of the Home Point loans, it sounds like you're expecting some of that off boarding to take place in 2Q. Speaker 300:25:33I guess first, that'd be Speaker 600:25:34the bulk of it? And then secondly, can you maybe talk to the off boarding fees, maybe the size and timing of those? Speaker 300:25:42Yes. Thanks, John. So we're going to today, we've got roughly about $380,000,000 of deposits, give or take. I mean, it changes by the day. And we think $50,000,000 will leave around May 1st and $330,000,000 will leave on July 1. Speaker 300:26:00And at that point, we won't have any more of the Home Point loans. And as I mentioned earlier, when we lose those deposits at our bank, we'll lose $20,000,000 on an annualized basis of investment income because we're really just earning Fed funds. And we're also paying out Fed funds. So we'll lose about $20,000,000 of annualized expense as well. Speaker 600:26:22Okay. And then are there fees associated with that off boarding that are paid to you? Speaker 300:26:28There are de boarding fees. I would say they're pretty de minimis though, I mean less than $1,000,000 So there are deporting fees, but it's not it won't be material. Speaker 600:26:39Okay. That's helpful. And then from a CapEx standpoint, last quarter, Mark, I think you mentioned expecting $30,000,000 or so of relief just from the wind down of some sulfur projects. Honestly, that's been ramped and you expect higher depreciation from here. But just from an overall CapEx standpoint, kind of what you're expecting for this year and maybe if you got visibility in next year, what that looks like for next Speaker 300:27:00year? So we think our CapEx has peaked. Last year, we were $260,000,000 of CapEx. We think CapEx will be down somewhere between 15% 20% this year. And a lot of that has to do with some of these big initiatives. Speaker 300:27:19You're never done, but the sort of the pig has been pushed through the Python, if you will, and kind of over the hump. And also, we're doing things a lot more efficiently now. We've found that just hiring great tech talent, great engineers, It's just a better way to build products as opposed to going to 3rd parties where you're paying more and not quite getting the same value. So that's been a big initiative for us and it's we're seeing early signs of success. So we feel really good about the direction of where we're going from a tech perspective. Speaker 300:27:52And not only is that going to help us from a performance in terms of building products, but it's also going to have the effect of saving dollars, particularly CapEx dollars. So 15% to 20% decline this year. And that's with still making all the strategic investments that we feel like we need to make. Speaker 600:28:08Okay. That's helpful. And if Operator00:28:09I could squeeze in one more, Speaker 600:28:10I think I might have missed this, but did you comment on the April refi month to date orders? Speaker 300:28:18The April refi orders are we're running at about $3.71 per day. And it's about the same as where it was last year and about 6% over last month. Speaker 600:28:32Okay, great. Thank you, guys. Thanks, John. Thanks, Operator00:28:59And at this time, there are no additional questions. That also concludes this morning's call. We'd like to remind listeners that today's call will be available for replay on the company's website or by dialing 877 660-6853 or 201-612-7415 and enter the conference ID number 13,745,815. The company would like to thank you for your participation. This concludes today's conference call. Operator00:29:30You may nowRead morePowered by Conference Call Audio Live Call not available Earnings Conference CallFirst American Financial Q1 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Quarterly report(10-Q) First American Financial Earnings HeadlinesQ1 2025 First American Financial Corp Earnings Call TranscriptApril 25 at 12:37 AM | gurufocus.comAnalysts Are Bullish on These Financial Stocks: Discover Financial Services (DFS), First American Financial (FAF)April 24 at 3:38 PM | markets.businessinsider.com$2 Trillion Disappears Because of Fed's Secretive New Move$2 trillion has disappeared from the US government's books. The reason why is a new, secretive move being carried out by the Fed that has nothing to do with lowering or raising interest rates... but could soon have an enormous impact on your wealth.April 26, 2025 | Stansberry Research (Ad)First American Financial sees 29% commercial revenue growth in Q1 2025 amid new leadership focusApril 24 at 3:38 PM | msn.comFirst American Financial Corporation (FAF) Q1 2025 Earnings Call TranscriptApril 24 at 3:10 PM | seekingalpha.comA Peek at First American Financial's Future EarningsApril 24 at 2:00 AM | benzinga.comSee More First American Financial Headlines Get Earnings Announcements in your inboxWant to stay updated on the latest earnings announcements and upcoming reports for companies like First American Financial? Sign up for Earnings360's daily newsletter to receive timely earnings updates on First American Financial and other key companies, straight to your email. Email Address About First American FinancialFirst American Financial (NYSE:FAF), through its subsidiaries, provides financial services. It operates through Title Insurance and Services, and Home Warranty segments. The Title Insurance and Services segment issues title insurance policies on residential and commercial property, as well as offers related products and services internationally. This segment also provides closing and/or escrow services; products, services, and solutions to mitigate risk or otherwise facilitate real estate transactions; and appraisals and other valuation-related products and services, lien release and document custodial services, warehouse lending services, default-related products and services, document generation services, mortgage loans subservicing, and related products and services, as well as banking, trust, and wealth management services. In addition, it accommodates tax-deferred exchanges of real estate; and maintains, manages, and provides access to title plant data and records. This segment offers its products through a network of direct operations and agents in various states and in the District of Columbia, as well as in Canada, the United Kingdom, Australia, New Zealand, South Korea, and internationally. The Home Warranty segment provides home warranty products, including residential service contracts that cover residential systems, such as heating and air conditioning systems, and various appliances against failures that occur as the result of normal usage during the coverage period. This segment operates in various states and the District of Columbia. The company was founded in 1889 and is headquartered in Santa Ana, California.View First American Financial ProfileRead more More Earnings Resources from MarketBeat Earnings Tools Today's Earnings Tomorrow's Earnings Next Week's Earnings Upcoming Earnings Calls Earnings Newsletter Earnings Call Transcripts Earnings Beats & Misses Corporate Guidance Earnings Screener Earnings By Country U.S. Earnings Reports Canadian Earnings Reports U.K. Earnings Reports Latest Articles Markets Think Robinhood Earnings Could Send the Stock UpIs the Floor in for Lam Research After Bullish Earnings?Market Anticipation Builds: Joby Stock Climbs Ahead of EarningsIs Intuitive Surgical a Buy After Volatile Reaction to Earnings?Seismic Shift at Intel: Massive Layoffs Precede Crucial EarningsRocket Lab Lands New Contract, Builds Momentum Ahead of EarningsAmazon's Earnings Could Fuel a Rapid Breakout Upcoming Earnings Cadence Design Systems (4/28/2025)Welltower (4/28/2025)Waste Management (4/28/2025)AstraZeneca (4/29/2025)Mondelez International (4/29/2025)PayPal (4/29/2025)Starbucks (4/29/2025)DoorDash (4/29/2025)Honeywell International (4/29/2025)Regeneron Pharmaceuticals (4/29/2025) Get 30 Days of MarketBeat All Access for Free Sign up for MarketBeat All Access to gain access to MarketBeat's full suite of research tools. 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There are 9 speakers on the call. Operator00:00:00Greetings, and welcome to the First American Financial Corporation First 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. A copy of today's press release is available on First American's website at www.firstam.com/investor. Please note that this 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 137 45815. Operator00:00:48And we will now turn the call over to Craig Barberio, Vice President, Investor Relations to make an introductory statement. Speaker 100:00:57Thank you, operator. Good morning, everyone, and welcome to First American's earnings conference call for the Q1 of 2024. Joining us today on the call will be our Chief Executive Officer, Ken DiGiorgio and Mark Seaton, Executive Vice President and Chief Financial Officer. Some of the statements made today may contain forward looking statements that do not relate strictly to historical or current facts. These forward looking statements speak only as of the date they are made, and the company does not undertake to update forward looking statements to reflect circumstances or events that occur after the date the forward looking statements are made. Speaker 100:01:33Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward looking statements. For more information on these risks and uncertainties, please refer to yesterday's earnings release and the risk factors discussed on our Form 10 ks and subsequent SEC filings. Our presentation today contains certain non GAAP financial measures that we believe provide additional insight into the operational efficiency and performance of the company relative to earlier periods and relative to the company's competitors. For more details on these non GAAP financial measures, including presentation with and reconciliation to the most directly comparable GAAP financials, please refer to yesterday's earnings release, which is available on our website at www.firstam.com. I will now turn the call over to Ken DiGiorgio. Speaker 200:02:28Thank you, Craig. Market conditions in the real estate and mortgage industries continued to be a challenge in the seasonally weak Q1. Elevated mortgage rates and low, albeit growing inventory levels have caused transaction volumes to remain near historically low levels. During this period, we've maintained our focus on managing operating expenses, while continuing to invest in long term strategic initiatives such as expanding our title plant assets and building technology solutions to increase efficiency, reduce risk and enhance our customers' experience. Although our financial results this quarter were a function of the tough mortgage origination market, we have recently started to see signs of a measured recovery. Speaker 200:03:18In March, our open resale orders per day were up 5% and that positive trend has continued so far in April with open resale orders up 2%. Growth in our resale orders so far this year is the first positive change we've seen in this key market since June of 2021. We are also seeing improvement in our commercial business with open orders up 1% in the 1st quarter and we have seen further growth in April with open orders up 5%. Our home warranty segment had another strong quarter delivering a pre tax margin of 19% and is positioned well for future growth. On our last earnings call, we stated that we expect revenue growth this year and that we can achieve title margins similar to what we posted in 2023. Speaker 200:04:13After closing the books on the Q1 and looking at the order pipeline in April, our expectations remain unchanged. I'd like to take a moment to address the recent attention our industry has received from Washington DC. This attention is the product of a broader effort, an effort which all of us at First American wholeheartedly support to make the purchase of a home more affordable. The focus on our industry as part of this effort reveals, however, that as an industry, we need to do a better job educating policymakers and other stakeholders about the critical role title insurance plays in protecting people's investments in their homes, which are the primary vehicle for wealth creation for a majority of Americans. This role includes not only paying claims when they arise, but also the extensive work we do to correct title defects before the transaction closes, The cost of which is not reflected in our industry's claims rate. Speaker 200:05:16This important curative work protects consumers and lenders among others from 100 of 1,000,000,000 of dollars of title risk exposure per year. Moreover, title and settlement fees are among the smallest cost components over the life of a mortgage and as a result are not a barrier to homeownership. The discussions in Washington are still in early stages and we believe that ultimately our industry will be successful in reaffirming the value of title insurance to policymakers. But irrespective, we are uniquely positioned to meet the demands of an evolving market because of our growing leadership in title data, which is fueled by our proprietary data extraction technology, our national closing platform and deep distribution relationships, our extensive underwriting expertise, our commitment to and continued investment in cutting edge technology such as endpoint, our digital settlement platform and automated underwriting for purchase transactions and most importantly, our world class workforce and culture, which recently resulted in our recognition as one of the 100 Best Companies to Work For by Great Place to Work and Fortune Magazine for the 9th consecutive year. Though we are the leader in the digital transformation of our industry, fundamentally we are a people business and it is the quality, talent and dedication of our people that ensure our company's long term success. Speaker 200:06:54Now I'd like to turn the call over to Mark for a more detailed discussion of our financial results. Speaker 300:07:00Thank you, Ken. This quarter, we generated earnings of $0.45 per diluted share. Our adjusted earnings per share, which excludes the impact of net investment gains and purchase related amortization, was the same as our GAAP earnings at $0.45 per share, as $0.07 of realized gains were offset by $0.07 of purchase related amortization. Turning to our title segment, revenue was $1,300,000,000 down 2% compared with the same quarter of 2023. Purchase revenue was up 2% during the quarter, driven by a 2% increase in the average revenue per order. Speaker 300:07:40Commercial revenue was $143,000,000 a 4% decline over last year. Though our closed commercial orders fell 4 percent, the average revenue per order for commercial transactions increased 1%. Refinance revenue declined 13% relative to last year. With mortgage rates hovering around 7%, they are still at levels materially above what is needed to generate a significant rise in refinance activity. In the agency business, revenue was $564,000,000 down 5% from last year. Speaker 300:08:14Given the reporting lag in agent revenues approximately 1 quarter, these results primarily reflect remittances related to Q4 economic activity. Our information and other revenues were $217,000,000 down 2% relative to last year. This decline was primarily due to an increase in the capture rate of title premiums from an affiliated title agent, which caused a decline in information and other revenue and a comparable increase to direct premium and escrow fees. Investment income within the Title Insurance and Services segment was $117,000,000 down $8,000,000 relative to the prior year due to lower average interest bearing balances in the company's escrow and tax deferred property exchange business that were partly offset by higher interest income from the company's warehouse lending business. The provision for policy losses and other claims was $29,000,000 in the Q1 or 3.0% of title premiums and escrow fees, down from the 3.5% loss provision rate in the prior year. Speaker 300:09:18The 3.0% loss rate reflects an ultimate loss rate of 3.75% for the current year with a $7,000,000 release from prior policy years. Over the last several quarters, we have highlighted the margin drag in the title segment related to both endpoint and instant decisioning for purchase transactions. Together, these two strategic initiatives reduced our pretax margin in the title segment by 150 basis points this quarter. Pretax margin in the title segment was 5.5% or 4.8% on an adjusted basis. These margins reflect a $6,200,000 write off of uncollectible balances impacting the margins by 50 basis points. Speaker 300:10:01Total revenue in our Home Warranty business totaled $105,000,000 a 1% increase compared with last year. Pre tax income in Home Warranty was $20,000,000 up 28% from the prior year. The loss ratio in Home Warranty was 42%, down from 47% in 2023, driven by lower frequency and severity of claims. Adjusted pre tax margin in the Home Warranty segment was 18.8%, up from 15.2% in 2023. The effective tax rate for the quarter was 19.9%, lower than our normalized rate of 24%, due primarily to research and development tax credits recognized during the quarter. Speaker 300:10:43In the Q1, we repurchased 58,600 shares for a total of $3,500,000 at an average price of $59.37 Our debt to capital ratio as of March 31 was 30.3%. Excluding secured financings payable, our debt to capital ratio was 22.5%. Now I would like to turn the call back over to the operator to take your questions. Operator00:11:09Thank you. We will now be conducting a question and answer And the first question comes from the line of Bose George with KBW. Please proceed with your question. Speaker 400:11:40Hey, everyone. Good morning. I wanted to first ask just about investment income. I mean, Mark, you noted that reduction year over year was on lower escrow and I think on tenthirty one balances. Can you just dig into some of the drivers of that? Speaker 300:11:54Sure, Bose. So one of the things we've seen here as interest rates have risen is that more of our customers are liking to earn interest on their escrow deposits. We have 2 I'm simplifying here, but we have 2 basic types of deposits, savings deposits and checking deposits. And more of our customers are electing for savings deposits. And in itself, that should really have an impact on our investment income because one of the advantages that we have is we can monetize savings deposits when a lot of our peers can't because of our bank. Speaker 300:12:28But the second dynamic that's happening in addition to the shift to savings deposits is that more of those savings deposits are going to 3rd party banks as opposed to our own bank First American Trust. A lot of it's related to economic reasons because third party banks will pay higher rates than First American Trust. And so if we have a higher mix of our deposits at 3rd party banks, we can't earn interest on those. So when you look at the total mix of deposits that we don't earn interest on today, it's 30%, a year ago it was 18%. So that mix shift has been a little bit of a headwind for us for investment income. Speaker 300:13:06And then the second factor, of course, is just the 1031 businesses volumes are lower today than they were a year ago. Speaker 400:13:14Okay. Yes, great. That's helpful. And just to be clear, is it the commercial customers who have the ability kind of direct that escrow versus residential? Or how does that work? Speaker 300:13:26Everybody has the ability to do it, whether you're a a consumer or large commercial client, you have the ability to request a savings account, but typically commercial customers are the ones that really drive that trend. Speaker 400:13:40Okay, great. And then just in terms of sort of expectations for that investment income line item for the remainder of the year, can you just talk about that? Speaker 300:13:50Yes, sure. So when we look out the next couple of quarters, we think our investment income in the title segment will be somewhere between $120,000,000 $125,000,000 per quarter. We'll probably be at the higher end of that range in Q2 and a little bit lower as the year goes on in that range. And that assumes a couple of things. One, just the normal seasonality of the business. Speaker 300:14:15Typically, Q1 is kind of low point in terms of investment income just because escrow balances are lower there. The second thing is, we have our we've talked about these HomePoint balances and we expect the HomePoint balances to leave somewhere around Q2. So that assumes that HomePoint balances will leave. That's going to be about $20,000,000 of annualized investment income. And by the way, it's also going to be about $20,000,000 of annualized interest expense. Speaker 300:14:44So it sort of washes on a net basis. But if you're just looking at our investment income, it will go down about $5,000,000 a quarter once we lose those balances. And the third thing it assumes is just 2 Fed rate cuts. Now I know I was looking at it this morning and that market is assuming 1 Fed rate cut, but we had 2 Fed rate cuts at the end of the year. So when you mix that all together, we think we should be somewhere between $120,000,000 $125,000,000 per quarter in the title segment. Speaker 400:15:10Okay, great. Thank you. Speaker 300:15:12Thanks, Will. Operator00:15:15And the next question comes from the line of Terry Ma with Barclays. Please proceed with your question. Speaker 500:15:21Hey, thanks. Good morning. Can you maybe just speak at a high level about your confidence level in achieving the revenue growth and margin guide? It's a pretty uncertain macro interest rate outlook. Speaker 200:15:34Yes, Terry. Thanks for the question. This is Ken. Yes, I mean, listen, we think that the challenging conditions will persist for the year. Though we think 2024 will be slightly better. Speaker 200:15:49And I think we have a high degree of confidence in that. But again, I want to emphasize this slightly better. And we look at things like the commercial business, while it was weak in the Q1, We're seeing open orders as we mentioned up 1% in the quarter, up 5% in April so far. In the commercial business, our ARPA, while it had the typical seasonal decline, it is up 1% over the prior year, which suggests that maybe the price discovery has concluded or is at least well along the way. And I noted that there was an article in the Wall Street Journal earlier this week about Blackstone thinks that commercial real estate has hit bottom and obviously they have their finger on the pulse of the commercial real estate market. Speaker 200:16:34So that gives us some confidence on the commercial market. On the purchase market, affordability will continue to be a challenge with mortgage rates, prices, low supply. But we are seeing some green shoots there with, as I had mentioned, open resale orders up 5 2024 will be better than 2023, but it isn't going to be meaningfully better. Speaker 500:17:12Got it. That's helpful color. And then my second question, just on the margin drag from endpoint and Instant Vision. I think you said it was 150 basis points this quarter. I think you guys quoted 130 last quarter. Speaker 500:17:25So what drove the delta? And how should we think about that drag kind of evolving throughout the rest of the Speaker 300:17:33year? Really what drove the drag was we had a little bit less revenue at Endpoint and a little bit more expenses at both endpoint and kind of our instant decisioning for purchase transactions. We're making a lot of progress with both. With the drag should be less going forward just because of Q1 is typically the lowest revenue. So just the fact that our revenue at the title segment is going to improve from here on out. Speaker 300:18:01That's just because of the math is going to reduce the Speaker 600:18:04drag from here on out. Speaker 500:18:07Got it. That makes sense. Thank you. Speaker 600:18:09Thanks, Jerry. Operator00:18:12And the next question comes from the line of Soham Bansal with BTIG. Please proceed with your question. Speaker 700:18:18Hey, good morning guys. Hope you're all doing well. Mark, I just want to dig a little bit on the margin guide. So if I sort of take what you're implying, right, sort of flattish margins for this year, that would imply margins for every quarter sort of going forward are just, I guess, higher from last year to hit that double digit margin. So can you just walk us through some of the moving parts? Speaker 700:18:42I think you just mentioned some of the drag stuff, but like can you just a little bit more detail there would be helpful? Speaker 300:18:50Yes, sure. So just with our margin outlook, there's a few things going on. I mean, just to reiterate, I mean, we think that the margins will be comparable to last year. It's still early in the year. There's still a lot of things that are moving around. Speaker 300:19:06On the positive side, we've got we're off the bottom now. We just talked about this. We've got open orders up and that's going to bode well for later in the year. So we finally feel like after 2 years of having negative growth, we're bumping up off the bottom and we're going to expect growth in our core businesses in purchasing commercial. We've got tailwinds with respect to the loss rate. Speaker 300:19:28We've got tailwinds with respect to a lot of the cost cutting efforts we did last year. And then we got headwinds. We've got we're going to have about $20,000,000 more of depreciation this year because of some of the capital expenditures we've made in the past and some of these projects are going live. So that's going to be a headwind. Some of our benefits and 401 matches and things like that kind of get reset. Speaker 300:19:51And then we just talked about earlier on the call how we have some headwinds for investment income. So I think that for the I think the second quarter is going to be tough to beat where we were a year ago, but we expect that the margins second half of the year will be kind of better than we had last year. And when you mix that all together, we should be in line with last year. Speaker 700:20:13Okay, got it. And then just on investment income, so you sort of noted non interest bearing deposits moving out of FHA trust to third party banks. Should we I guess in the guide that you gave the $120,000,000 I believe, are you sort of baking in a continuation of that? Or do you sort of see more normalization there after this quarter? Speaker 300:20:39Yes, thanks for that. First of all, their interest bearing accounts are going to these 3rd parties. I just want to correct that. And in our guide here, we don't we assume that 30% mix stayed the same. So that's a risk. Speaker 300:20:54I mean, if the 30% keeps climbing, I mean, that's going to be a risk to our $120,000,000 to $125,000,000 guide. But we also are kind of in the very early stages of coming up with plans to kind of reverse that trend by paying more at the bank. So I think assuming a 30% mix of 3rd party is a reasonable assumption, but it could go higher and lower depending on what happens in the market. Speaker 600:21:20Okay. Thanks, guys. Thank you. Speaker 700:21:25Thank Operator00:21:42Our next question comes from the line of Mark Hughes with Chivas Securities. Please proceed with your question. Speaker 800:21:48Yes, thank you. Good morning. Good morning. Any more detail you can discuss on potential regulatory changes if buyers are not required to purchase the title insurance, but it's bundled in with the mortgage. How do you view that as a competitive evolution in the business? Speaker 200:22:17Yes. I assume you're talking about, Mark, the CFPB request for information for prohibiting lenders from passing through the cost of title. I mean this has been this was tried before by HUD and it didn't get off the ground. I think probably a big reason for that and I think it will be a big reason for why it probably won't get off the ground this time around either is the lack of transparency. So I think policymakers prefer that borrowers know exactly what they're paying for, because ultimately borrowers will still pay for lenders title insurance policy that will just be wrapped up into the interest rate or loan level price adjustments or what have you. Speaker 200:23:00So I don't think ultimately it will take off. But if it does, I think the value proposition of title insurance to lenders is well established. And I think, again, we have to keep a close eye on developments, but I don't think it will ultimately have a significant impact on the lender side of our title insurance business or the industry for that matter. Speaker 800:23:29Thank you for that. The commercial ARPU you suggested that was an indication of the price discovery is progressing. Was there a mix shift as part of that, bigger deals started happening because of the price discovery? Is that the idea? Speaker 300:23:53Yes. The bigger deals are always a component that we look at. We had 4, what we call mega deals with premium over $1,000,000 in the most recent quarter. So that always has an effect on the commercial ARPU. But as a general statement, we think that after again, after seeing declines in commercial ARPU for several quarters now, it's finally leveled off, which is a good sign, kind of mirrors the bottom end we've seen on the residential side. Speaker 800:24:23Yes. And then purchase ARPU, this wasn't much movement, but last quarter it was up 4, this quarter up 2. Any detail on that? Was that just a geographic mix shift? What do you see there? Speaker 300:24:44It's kind of what we think. I mean, there's 2 things to drive it. 1 is housing prices. Housing prices are still rising. I think given the fact that where housing prices are, the increase in housing prices, we would expect kind of a 2% fee per file. Speaker 300:25:00The other thing that can drive it depending on the quarter is just the mix. I mean, if we get a lot more business in California, which has a higher fee per file, that could drive things. But really, it's more a function of where housing prices are. Speaker 600:25:14Thank you. Speaker 300:25:16Thanks a lot, Mark. Operator00:25:19And our next question comes from the line of John Campbell with Stephens. Please proceed with your question. Speaker 600:25:24Hi, good morning. Just back to the transition of the Home Point loans, it sounds like you're expecting some of that off boarding to take place in 2Q. Speaker 300:25:33I guess first, that'd be Speaker 600:25:34the bulk of it? And then secondly, can you maybe talk to the off boarding fees, maybe the size and timing of those? Speaker 300:25:42Yes. Thanks, John. So we're going to today, we've got roughly about $380,000,000 of deposits, give or take. I mean, it changes by the day. And we think $50,000,000 will leave around May 1st and $330,000,000 will leave on July 1. Speaker 300:26:00And at that point, we won't have any more of the Home Point loans. And as I mentioned earlier, when we lose those deposits at our bank, we'll lose $20,000,000 on an annualized basis of investment income because we're really just earning Fed funds. And we're also paying out Fed funds. So we'll lose about $20,000,000 of annualized expense as well. Speaker 600:26:22Okay. And then are there fees associated with that off boarding that are paid to you? Speaker 300:26:28There are de boarding fees. I would say they're pretty de minimis though, I mean less than $1,000,000 So there are deporting fees, but it's not it won't be material. Speaker 600:26:39Okay. That's helpful. And then from a CapEx standpoint, last quarter, Mark, I think you mentioned expecting $30,000,000 or so of relief just from the wind down of some sulfur projects. Honestly, that's been ramped and you expect higher depreciation from here. But just from an overall CapEx standpoint, kind of what you're expecting for this year and maybe if you got visibility in next year, what that looks like for next Speaker 300:27:00year? So we think our CapEx has peaked. Last year, we were $260,000,000 of CapEx. We think CapEx will be down somewhere between 15% 20% this year. And a lot of that has to do with some of these big initiatives. Speaker 300:27:19You're never done, but the sort of the pig has been pushed through the Python, if you will, and kind of over the hump. And also, we're doing things a lot more efficiently now. We've found that just hiring great tech talent, great engineers, It's just a better way to build products as opposed to going to 3rd parties where you're paying more and not quite getting the same value. So that's been a big initiative for us and it's we're seeing early signs of success. So we feel really good about the direction of where we're going from a tech perspective. Speaker 300:27:52And not only is that going to help us from a performance in terms of building products, but it's also going to have the effect of saving dollars, particularly CapEx dollars. So 15% to 20% decline this year. And that's with still making all the strategic investments that we feel like we need to make. Speaker 600:28:08Okay. That's helpful. And if Operator00:28:09I could squeeze in one more, Speaker 600:28:10I think I might have missed this, but did you comment on the April refi month to date orders? Speaker 300:28:18The April refi orders are we're running at about $3.71 per day. And it's about the same as where it was last year and about 6% over last month. Speaker 600:28:32Okay, great. Thank you, guys. Thanks, John. Thanks, Operator00:28:59And at this time, there are no additional questions. That also concludes this morning's call. We'd like to remind listeners that today's call will be available for replay on the company's website or by dialing 877 660-6853 or 201-612-7415 and enter the conference ID number 13,745,815. The company would like to thank you for your participation. This concludes today's conference call. Operator00:29:30You may nowRead morePowered by