NYSE:FAF First American Financial Q4 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$1.35Consensus EPS $1.13Beat/MissBeat by +$0.22One Year Ago EPSN/AFirst American Financial Revenue ResultsActual RevenueN/AExpected Revenue$1.62 billionBeat/MissN/AYoY Revenue GrowthN/AFirst American Financial Announcement DetailsQuarterQ4 2024Date2/12/2025TimeAfter Market ClosesConference Call DateThursday, February 13, 2025Conference Call Time11:00AM ETConference Call ResourcesConference Call AudioConference Call TranscriptPress Release (8-K)Annual Report (10-K)Earnings HistoryCompany ProfilePowered by First American Financial Q4 2024 Earnings Call TranscriptProvided by QuartrFebruary 13, 2025 ShareLink copied to clipboard.There are 8 speakers on the call. Operator00:00:00Greetings. Welcome to First American Financial Corporation's Fourth Quarter and Full Year twenty twenty four 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. Operator00:00:33Please note this call is being recorded and will be available for replay from the company's investor website for a short time by dialing (877) 660-6853 or (201) 612-7415 and enter the conference ID 13751214. We will now turn the call over to Craig Barbiello, Vice President, Investor Relations to make an introductory statement. Please go ahead. Speaker 100:01:11Good morning, everyone, and welcome to First American's fourth quarter and year end twenty twenty four earnings call. 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. Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward looking statements. Speaker 100:01:52For more information on these risks and uncertainties, please refer to yesterday's earnings release and the risk factors discussed on our Form 10 K and subsequent SEC filings. Our presentation today also 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 200:02:38Thank you, Craig. Twenty twenty four continued to be a challenging year for our industry, particularly in the residential purchase and refinance markets. Relatively low inventory, elevated home prices and mortgage rates hovering around 7% have together produced a home sales market that is as low as we've seen since the mid-1990s. High mortgage rates have also kept refinance volumes at trough levels. Through this ongoing downturn in the market, we have maintained our commitment to invest in the business, making considerable progress with our strategic initiatives, while remaining focused on expense management with an emphasis on optimizing our information technology environment. Speaker 200:03:27Despite these generally challenging conditions, at the end of the year, we did, however, benefit from a surge in our commercial business and began realizing the full benefit of our strategic investment portfolio rebalancing project. In all, we delivered an adjusted pretax title margin of 10.3% for the year. In the fourth quarter, we delivered excellent results. Title premiums and escrow revenues were up double digits across all key business lines, highlighted by 47% growth in our commercial revenue. In our commercial business, we saw broad based strength across all asset classes with industrial and multifamily leading the way. Speaker 200:04:12Our investment income of $155,000,000 in the title segment exceeded our expectations. And our success ratio was 51% this quarter on net operating revenue growth of 25%, reflecting our continued focus on expense management and the benefit of scale in our business. Our adjusted pretax title margin for the quarter was 11.8%. Our Home Warranty segment had a good quarter, posting revenue growth of 4% and an adjusted pretax margin of 18.2%. During the quarter, we continued to invest in our direct to consumer channel, which accounted for 42% of our contracts written in 2024 and which we expect will improve profitability as the lifetime value of these new policies is realized over time. Speaker 200:05:07Turning to the outlook for 2025, while we are planning for mortgage rates to remain elevated, we expect modest improvement in both the residential purchase and refinance businesses. Though still early, we are already seeing this in our results. For the four weeks ending February 7, our purchase orders were up 1% and our refinance orders were up 43% compared with the same period in the prior year. Our commercial business is off to a strong start with revenues up 24% in January. We expect our commercial business will have a good year with revenue growth weighted to the first half of the year given the 33% increase experienced in the second half of last year. Speaker 200:05:59On the whole, 2025 will be another year of earnings improvement in what looks to be the early stages of the next real estate cycle. In closing, I would like to comment on the widespread damage and devastation from the recent wildfires in the Los Angeles area, which unfortunately directly impacted several of our people and customers. Our thoughts are with them and the many others who have suffered through this terrible event. Our company's roots in Southern California and the Greater Los Angeles Hundred And 30 5 Years. So all of us at First American feel a responsibility to help our colleagues, neighbors, friends and families cope with this tragedy. Speaker 200:06:43Our company, along with many of our employees, have responded to that call. I want to thank our people for all they have done to provide support and relief to those affected. Speaker 300:06:54Now I'd like to Speaker 200:06:55turn the call over to Mark for a more detailed discussion of our financial results. Speaker 400:07:00Thank you, Ken. This quarter, we generated GAAP earnings of $0.69 per diluted share. Our adjusted earnings, which exclude the impact of net investment losses and purchase related amortization, was $1.35 per diluted share. Turning to our title segment, revenue was $1,600,000,000 up 22% compared with the same quarter of 2023. Purchase revenue was up 18% during the quarter driven by an 11% increase in closed orders as well as a 5% improvement in the average revenue per order. Speaker 400:07:33Commercial revenue was $252,000,000 a 47% improvement over last year. Our closed orders increased 4%, while our average revenue per orders surged 39% due to broad based strength across both asset class and transaction size. Refinance revenue climbed 75% relative to last year due to a 68% improvement in closed orders. Refinance accounts for just 5% of our direct revenue and highlights how distressed that market continues to be with mortgage rates around 7%. In the agency business, revenue was $698,000,000 up 23% from last year. Speaker 400:08:14Given the reporting lag in agent revenues of approximately one quarter, these results reflect remittances related to Q3 economic activity. Information and other revenues were $238,000,000 during the quarter, up 13% compared with last year due to growth in Canada, commercial and the data and analytics business. Investment income was $155,000,000 in the fourth quarter, up $23,000,000 compared with the same quarter of last year, primarily due to the strategic portfolio rebalancing project we executed in the third quarter, which has helped us grow our investment income despite three Fed rate cuts. The provision for policy losses and other claims was $38,000,000 in the fourth quarter or 3% of title premiums and escrow fees, unchanged from the prior year. The fourth quarter rate reflects an ultimate loss rate of 3.75% for the current policy year and a net decrease of $10,000,000 in the loss reserve estimates for prior policy years. Speaker 400:09:12Adjusted pretax margin in the title segment was 11.8% excluding both net realized losses and purchase related amortization. Total revenue in our Home Warranty business totaled $103,000,000 up 4% compared with last year. The loss ratio in Home Warranty was 44% unchanged relative to 2023. Adjusted pretax margin in the Home Warranty segment was 18.2% compared with 19.9% last year. Included in this quarter's results were $6,000,000 related to a change in estimates of earned premium revenue, which negatively impacted both revenue and pre tax income. Speaker 400:09:51The effective tax rate in the quarter of 27% was driven by a valuation reserve against deferred tax assets, partly offset by the recognition of research and development tax credits. This resulted in a reduction of $0.03 per diluted share when compared to the company's normalized tax rate of 24%. Our debt to capital ratio as of December 31 was 30.8%. Excluding secured financing payable, our debt to capital ratio was 23.9%. Now I would like to turn the call back over to the operator to take your questions. Operator00:10:26Thank you. Our first question is from Mark DeVries with Deutsche Bank. Please proceed. Speaker 500:10:57Yes, thanks. Wanted to drill down on the results in the commercial business in the quarter. It sounds like you indicated across the board strength in both transaction volumes and size. Could you just talk more about what you've seen? Sounds like you didn't benefit from some really large multi site transactions, but just trying to get a sense of the true breadth of the recovery here and also kind of what it implies for the go forward growth rate on the business? Speaker 200:11:28Yes. Thanks for the question, Mark. We did benefit from some large deals. There were 14 large 14 what we would refer to as large deals that are greater than $1,000,000 in premium and that would be that compares to eight in the previous quarter or quarter over quarter. And we feel pretty good about the commercial business as a whole. Speaker 200:11:50I mean, the trends are great. I mean, in Q3, our revenue was up 19%. In Q4, as we mentioned earlier, it's up 47%. And in January so far, it's up 24%. So we've got some confidence that there's going to be strength overall strength in the commercial market and strength in our commercial business. Speaker 200:12:09Now keep in mind, as I mentioned in my comments, that when you go to the second half of the year, you're going to be comparing it to the second half of a really strong 2024. Commercial revenue was up 33%. But on the whole, at least what we're hearing in the surveys we're seeing, we feel pretty good about the commercial market. Speaker 500:12:32Yes. Thanks. And then on the second half of next year, do you still think you could grow off of this really strong base you've had in the second half of twenty twenty four? Or do you kind of view growth as decelerating quite materially? I'm just trying to get a sense of the cadence across the four quarters. Speaker 200:12:55Yes. I mean, listen, we feel like we can grow, but there's so much uncertainty in the market between interest rates and the broader economy that it's hard to predict. But we feel like we can grow even off of even when compared to again our really strong second half of twenty twenty four. Speaker 500:13:17Okay. Great. And just one last on this topic for me. Just wanted to get a sense of what you think really caused this dramatic step up in the back half of the year? I know we've been talking about the markets at some levels being kind of locked up as parties looked for real visibility on where transactions would clear. Speaker 500:13:39Have we kind of reached a tipping point now where buyers and sellers have found equilibrium and pent up demand is really getting pulled through? Speaker 200:13:48Yes. Well, I mean, I think there was a couple of factors going. I think for one, the Fed action was helpful. The election, what the election was behind us. So there was some more certainty about the election. Speaker 200:14:01There's a lot of debt maturities coming up or they, parties had to either sell or refinance. And then to your point, I think price discovery is probably further along than it's ever been. So the market is starting to settle a little bit. And that will continue on I think into next year. Speaker 500:14:21Okay. Great. Thanks for the comments. Operator00:14:27Our next question is from Terry Ma with Barclays. Please proceed. Terry, please check and see if your line is muted. Speaker 600:14:40Yes, it was on mute. Thank you. Good morning. I just wanted to ask about kind of how to think about just title revenue growth expectations for this year. It looks like in 2024 ex any net realized losses, you guys did about kind of 6%. Speaker 600:14:55But most of it came in the back half and particularly in the fourth quarter. And you did indicate where you believe we're in the early stages of a real estate cycle. I think Fannie and MBA are projecting anywhere from 8% to kind of 9% purchase volume growth for this year. So any way to help us kind of think about kind of what the revenue growth expectations for the title business are this year? Speaker 400:15:21We break it out in markets, Terry. We feel like we're going to have growth similar to where the NBA is saying. I mean, obviously, it's hard to say, but I think somewhere in that range makes sense. I think on the refi side, it's probably even harder to say. We're going to have more growth in refis and purchase this year the way things are going, but it's off such a low base. Speaker 400:15:43It's probably not that material. And then Ken just kind of talked about the commercial business growth. So those are our three major markets. And the good news for us is we've got tailwinds in all three of them. So in terms of growth rates, it's still early. Speaker 400:16:00It's hard to say. But we feel confident that we'll grow in all those three markets, which are the most important ones to us. Speaker 600:16:11Got it. That's helpful. And then I guess, if those expectations play out, how should we kind of think about margin expectations? Should we Speaker 400:16:17be kind of modeling or Speaker 600:16:17thinking about, kind kind of like the success ratio? Speaker 200:16:26I'd say, Terry, that keep in mind, despite some very challenging markets over the last two years, we've had a 10% margin. I think if we get these sort of modest tailwinds that we've been talking about and we get some improved investment income and we'll continue controlling costs that we should be able to improve margins at least commensurate with the market. Speaker 600:16:51Okay, great. Thank you. Operator00:17:03Our next question is from Bose George with KBW. Please proceed. Speaker 700:17:09Hey, guys. Good morning. Actually, I just wanted to follow-up on the margin question. So I guess with the restructuring, actually, can you quantify the benefit there on the margin? So yes, all else equal, what would that have pushed up the margin? Speaker 700:17:24And then I assume the increases you talked about are kind of above that level. Is that right? Speaker 400:17:33Yes. You're talking about the strategic portfolio rebalancing project we did. Speaker 700:17:37Yes, exactly. Speaker 400:17:38So we did that in Q3 and we talked about how we would get $67,000,000 of benefit because of that. And so we've gotten some benefit in Q3. We got the full run rate here in Q4. And so when we look in 2024, everything else being equal, we'll get a 40 about a $42,000,000 investment income pickup and pretax income pickup because of the portfolio rebalancing project and that's compared to this year. So 2020 I'm sorry, 2025, we'll have $42,000,000 more of investment income than we did in 2024 because of the rebalancing project. Speaker 700:18:19Okay. And I mean, if I back of the envelope, it seems like that would be 50 ish basis points for the margin. Does that seem right? Yes. Okay. Speaker 700:18:29And then just going back to Ken's comment about the improvement in margin being commensurate with the market. So like so this year you guys did 10.3% margin, so we can add the 50% and then is it some improvement over that? Is that kind of the building blocks to the margin in 2025? Speaker 200:18:50Yes, I think it's probably at least that. I mean, we could get some lift too from additional cost control and additionally and potentially additional improvements in investment income if we are able, for example, to capture additional deposits from other channels we're looking at. So it's yes, it's at least commensurate with the market. Speaker 700:19:11Okay, great. Actually, and then just one on investment income. That number was up obviously quite a bit this quarter. Just can you talk about the run rate for that number in 2025? Speaker 400:19:23Yes. So when we were on this call in Q3, we really guided to like $140,000,000 to $145,000,000 investment income in Q4, because of the there was a lot of noise with the rebalancing project. And we came in at $155,000,000 So we're $10,000,000 higher than the high end of our forecast. So we really outperformed our own expectations in Q4 mainly because commercial was so strong. So commercial deals were stronger than what we expected. Speaker 400:19:52We hold escrow deposits in connection with these commercial deals. We can earn investment income with connection with these commercial deals. So that was all positive. So when we look next year for the full year of next year, we feel like we're going to grow investment income. On the one hand, we've got the $42,000,000 benefit that we just talked about from the portfolio rebalancing project. Speaker 400:20:15The negative though is we have had three rate cuts here in the fourth quarter and who knows what the Fed is going to do next year. But we at least have a $45,000,000 headwind going into next year because of the Fed rate cuts, right? So those two kind of wash out, but we still feel like we're going to grow investment income because of the market is Speaker 500:20:33going to grow, commercial is Speaker 400:20:34going to grow, we feel like we can grow our warehouse lending business and shift some more strategic deposits to the bank. So we expect growth in investment income on a year over year basis. When you look at the quarters though, we expect our investment income to drop Q4 to Q1 just because of seasonality. We're just holding less escrow deposits, investment income is going to fall in Q1. But that's just there is a seasonal factor to it. Speaker 400:20:58But on a year over year basis, we expect growth. Speaker 700:21:01Okay, great. Thank you. Speaker 500:21:03Thanks, Bruce. Operator00:21:06Our next question is from John Campbell with Stephens Inc. Please proceed. Speaker 300:21:12Hey, guys. Good morning. Congrats on a great quarter. Speaker 200:21:15Good morning. Thanks John. Good morning. Speaker 300:21:17Hey, so you guys obviously put up really good title pretax margin expansion. You're lapping a pretty disruptive 4Q last year. But if I look at the prior year, so fourth quarter twenty twenty three, you guys, oddly enough, put up the exact same level of title revenue, ex gains and losses. You almost had the identical level of that higher margin commercial rev, too. But the main difference was obviously the investment income is about $23,000,000 higher this year. Speaker 300:21:44I think some might look at that and say you guys should be put at higher margins. And I believe a lot of that or a portion of that higher investment income does get offset by higher title interest expense. So Mark, I'm hoping maybe you could just clear that up, walk through the mechanics there and then talk to the sensitivity of the bank driven investment income to interest expense offset? Speaker 400:22:09Yes. Thanks for that, John. So first of all, in terms of the offset, so most of our investment income is driven by our investment portfolio and our escrow deposits. I mean those are the two big drivers. There's other drivers, including our warehouse lending business, which does have an offset to interest expense. Speaker 400:22:32There's also another driver where our bank pays a cost of funds too. But most of it's the biggest piece is driven by the portfolio and there is no offset on interest expense there. So you're right, some of the growth we saw here in Q4 was because of our warehouse lending business and there's a corresponding offset on the interest expense side. In terms of our performance versus two years ago, 2023 was still a tough year. I mean, the market was still in decline and we were still in the process of cutting expenses. Speaker 400:23:07And so there just is a lag there. I think when we look today at our 51% success ratio, I mean, we're obviously coming out of the trough and we're proud of how we've been managing our expenses here. And we still feel like we can hit those success ratios going into next year. Speaker 300:23:23Okay. That's helpful. And then on the escrow driven upside, from commercial activity, is there a rule of thumb? I know it probably is not exact here, but for every $1,000,000 or call it $10,000,000 whatever it is for commercial revenue, how much of an upside that typically provides for investment income? Speaker 400:23:42There's no rule of thumb here. I mean, we're typically getting, let's call it, fed funds on our deposits. Commercial deposits, I mean, some of those deposits we get to keep for our benefit. Some of those deposits we don't get to keep because investors want to put it at third party banks for different reasons. So there's really not a rule of thumb. Speaker 400:24:00I mean, the way we model internally is all of our escrow deposits. I mean, I think that getting fed funds is that's the rule of thumb. But in terms of how it translates from commercial revenue to investment income, it's tough. There's just a lot of different factors going on. Speaker 300:24:15Yes. I can appreciate that for sure. And one more here on the info and other line within title, a good bit better than we expected. I'm just hoping to get just kind of a broad update there. I know ServiceMac, you had some revenue headwinds there. Speaker 300:24:29I saw deferred revenue was actually up a decent amount in their last quarterly filing. So I don't know if they're getting that business back on track or refilling the bucket, so to speak. So maybe you could talk to that and then some of the other drivers within that line? Speaker 400:24:43Yes. So the three big drivers are the biggest driver was our international business and rates have come down in Canada. And there's more refis. There's been there's a 175 basis point reduction in rates in Canada, which has really driven refis. So that's the biggest driver there. Speaker 400:25:03Close to that though is there's a well, I'll just call it U. S. Title. So there's a lot of business that we get that's not premium related, right? It's just property reports and other services and products that we provide that aren't risk based that go into that line item. Speaker 400:25:20And so as we've seen growth in commercial and resale and refi, we're naturally going to grow info and other just because of our non risk based products. And then the third component that really drove it was growth in our data and analytics business, which we've been growing for quite some time now. So those are the three big drivers in info and other. Speaker 300:25:40Okay. And I mean it's not a huge part of the business, so it might not matter too much here. But any kind of clarity on the pretax margin kind of profile for that segment or for that subsegment? Speaker 400:25:53No, because there I mean, if we had one, we'd share it. It's really just a collection of I mean, we've got 10 business units here and every business unit has a slice of info and others. So it's really not a standalone business. It's just a it's really it really represents the non risk based revenue that we have in all of our business units. So we don't have there's not one margin for it. Speaker 300:26:17Understood. Thanks guys. Speaker 400:26:19Thanks John. Operator00:26:22Our next question is from Mark Hughes with Truett Securities. Please proceed. Speaker 700:26:29Yes. Thank you. Good morning. Good morning. Mark, you had mentioned a $6,000,000 change in estimate. Speaker 700:26:35Did that flow 100% to the pretax line? It did, yes. Speaker 400:26:42And it's really deferred, so it hit the fourth quarter and we're going to we'll recapture it over 2025. But yes, it did hit revenue and pretax. Speaker 700:26:52Okay. Then any comment on the office market? It sounds like commercial is firing on all cylinders. Does that include office? Speaker 200:27:01Yes. I mean, office, Mark, wasn't a big component of our commercial revenue last quarter, but it is coming off the sidelines, particularly suburban office. But there is an increase, I think, in office activity. Speaker 700:27:23Question on the home warranty. When I think about that business, you've seen good growth in direct to consumer. It looks like the time on market is going up, inventory is going up and maybe that motivates some sellers to throw in warranties as the sweeteners. What do you think about that idea? Any sign of that in your results? Speaker 200:27:54Yes. Absolutely. I think as you get to a more buyer driven purchase market, you'll see more activity in home warranty. In fact, the real estate channel, again, that's the sales in connection with the purchase and sale property was a driver of our performance in the fourth quarter for home warranty. So I think your theory on that is right. Speaker 200:28:18As you go into a buyer driven market, you'll see some sprinkles added in with home warranty. Speaker 700:28:26Great. Thank you very much. Speaker 400:28:28Thanks, Mark. Operator00:28:31There are no additional questions in the queue. That will conclude this morning's call. We would like to remind listeners that today's call will be available for replay on our company's website or by dialing (877) 660-6853 or (201)Read morePowered by Conference Call Audio Live Call not available Earnings Conference CallFirst American Financial Q4 202400:00 / 00:00Speed:1x1.25x1.5x2x Earnings DocumentsPress Release(8-K)Annual report(10-K) 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.comHere’s How to Claim Your Stake in Elon’s Private Company, xAIElon Musk has done it again. He’s developed a powerful new AI model that’s already turning heads — and turning the industry upside down. Some say it could threaten Google’s search engine dominance. Others believe it could mark the beginning of the end for ChatGPT.April 26, 2025 | Brownstone 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 8 speakers on the call. Operator00:00:00Greetings. Welcome to First American Financial Corporation's Fourth Quarter and Full Year twenty twenty four 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. Operator00:00:33Please note this call is being recorded and will be available for replay from the company's investor website for a short time by dialing (877) 660-6853 or (201) 612-7415 and enter the conference ID 13751214. We will now turn the call over to Craig Barbiello, Vice President, Investor Relations to make an introductory statement. Please go ahead. Speaker 100:01:11Good morning, everyone, and welcome to First American's fourth quarter and year end twenty twenty four earnings call. 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. Risks and uncertainties exist that may cause results to differ materially from those set forth in these forward looking statements. Speaker 100:01:52For more information on these risks and uncertainties, please refer to yesterday's earnings release and the risk factors discussed on our Form 10 K and subsequent SEC filings. Our presentation today also 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 200:02:38Thank you, Craig. Twenty twenty four continued to be a challenging year for our industry, particularly in the residential purchase and refinance markets. Relatively low inventory, elevated home prices and mortgage rates hovering around 7% have together produced a home sales market that is as low as we've seen since the mid-1990s. High mortgage rates have also kept refinance volumes at trough levels. Through this ongoing downturn in the market, we have maintained our commitment to invest in the business, making considerable progress with our strategic initiatives, while remaining focused on expense management with an emphasis on optimizing our information technology environment. Speaker 200:03:27Despite these generally challenging conditions, at the end of the year, we did, however, benefit from a surge in our commercial business and began realizing the full benefit of our strategic investment portfolio rebalancing project. In all, we delivered an adjusted pretax title margin of 10.3% for the year. In the fourth quarter, we delivered excellent results. Title premiums and escrow revenues were up double digits across all key business lines, highlighted by 47% growth in our commercial revenue. In our commercial business, we saw broad based strength across all asset classes with industrial and multifamily leading the way. Speaker 200:04:12Our investment income of $155,000,000 in the title segment exceeded our expectations. And our success ratio was 51% this quarter on net operating revenue growth of 25%, reflecting our continued focus on expense management and the benefit of scale in our business. Our adjusted pretax title margin for the quarter was 11.8%. Our Home Warranty segment had a good quarter, posting revenue growth of 4% and an adjusted pretax margin of 18.2%. During the quarter, we continued to invest in our direct to consumer channel, which accounted for 42% of our contracts written in 2024 and which we expect will improve profitability as the lifetime value of these new policies is realized over time. Speaker 200:05:07Turning to the outlook for 2025, while we are planning for mortgage rates to remain elevated, we expect modest improvement in both the residential purchase and refinance businesses. Though still early, we are already seeing this in our results. For the four weeks ending February 7, our purchase orders were up 1% and our refinance orders were up 43% compared with the same period in the prior year. Our commercial business is off to a strong start with revenues up 24% in January. We expect our commercial business will have a good year with revenue growth weighted to the first half of the year given the 33% increase experienced in the second half of last year. Speaker 200:05:59On the whole, 2025 will be another year of earnings improvement in what looks to be the early stages of the next real estate cycle. In closing, I would like to comment on the widespread damage and devastation from the recent wildfires in the Los Angeles area, which unfortunately directly impacted several of our people and customers. Our thoughts are with them and the many others who have suffered through this terrible event. Our company's roots in Southern California and the Greater Los Angeles Hundred And 30 5 Years. So all of us at First American feel a responsibility to help our colleagues, neighbors, friends and families cope with this tragedy. Speaker 200:06:43Our company, along with many of our employees, have responded to that call. I want to thank our people for all they have done to provide support and relief to those affected. Speaker 300:06:54Now I'd like to Speaker 200:06:55turn the call over to Mark for a more detailed discussion of our financial results. Speaker 400:07:00Thank you, Ken. This quarter, we generated GAAP earnings of $0.69 per diluted share. Our adjusted earnings, which exclude the impact of net investment losses and purchase related amortization, was $1.35 per diluted share. Turning to our title segment, revenue was $1,600,000,000 up 22% compared with the same quarter of 2023. Purchase revenue was up 18% during the quarter driven by an 11% increase in closed orders as well as a 5% improvement in the average revenue per order. Speaker 400:07:33Commercial revenue was $252,000,000 a 47% improvement over last year. Our closed orders increased 4%, while our average revenue per orders surged 39% due to broad based strength across both asset class and transaction size. Refinance revenue climbed 75% relative to last year due to a 68% improvement in closed orders. Refinance accounts for just 5% of our direct revenue and highlights how distressed that market continues to be with mortgage rates around 7%. In the agency business, revenue was $698,000,000 up 23% from last year. Speaker 400:08:14Given the reporting lag in agent revenues of approximately one quarter, these results reflect remittances related to Q3 economic activity. Information and other revenues were $238,000,000 during the quarter, up 13% compared with last year due to growth in Canada, commercial and the data and analytics business. Investment income was $155,000,000 in the fourth quarter, up $23,000,000 compared with the same quarter of last year, primarily due to the strategic portfolio rebalancing project we executed in the third quarter, which has helped us grow our investment income despite three Fed rate cuts. The provision for policy losses and other claims was $38,000,000 in the fourth quarter or 3% of title premiums and escrow fees, unchanged from the prior year. The fourth quarter rate reflects an ultimate loss rate of 3.75% for the current policy year and a net decrease of $10,000,000 in the loss reserve estimates for prior policy years. Speaker 400:09:12Adjusted pretax margin in the title segment was 11.8% excluding both net realized losses and purchase related amortization. Total revenue in our Home Warranty business totaled $103,000,000 up 4% compared with last year. The loss ratio in Home Warranty was 44% unchanged relative to 2023. Adjusted pretax margin in the Home Warranty segment was 18.2% compared with 19.9% last year. Included in this quarter's results were $6,000,000 related to a change in estimates of earned premium revenue, which negatively impacted both revenue and pre tax income. Speaker 400:09:51The effective tax rate in the quarter of 27% was driven by a valuation reserve against deferred tax assets, partly offset by the recognition of research and development tax credits. This resulted in a reduction of $0.03 per diluted share when compared to the company's normalized tax rate of 24%. Our debt to capital ratio as of December 31 was 30.8%. Excluding secured financing payable, our debt to capital ratio was 23.9%. Now I would like to turn the call back over to the operator to take your questions. Operator00:10:26Thank you. Our first question is from Mark DeVries with Deutsche Bank. Please proceed. Speaker 500:10:57Yes, thanks. Wanted to drill down on the results in the commercial business in the quarter. It sounds like you indicated across the board strength in both transaction volumes and size. Could you just talk more about what you've seen? Sounds like you didn't benefit from some really large multi site transactions, but just trying to get a sense of the true breadth of the recovery here and also kind of what it implies for the go forward growth rate on the business? Speaker 200:11:28Yes. Thanks for the question, Mark. We did benefit from some large deals. There were 14 large 14 what we would refer to as large deals that are greater than $1,000,000 in premium and that would be that compares to eight in the previous quarter or quarter over quarter. And we feel pretty good about the commercial business as a whole. Speaker 200:11:50I mean, the trends are great. I mean, in Q3, our revenue was up 19%. In Q4, as we mentioned earlier, it's up 47%. And in January so far, it's up 24%. So we've got some confidence that there's going to be strength overall strength in the commercial market and strength in our commercial business. Speaker 200:12:09Now keep in mind, as I mentioned in my comments, that when you go to the second half of the year, you're going to be comparing it to the second half of a really strong 2024. Commercial revenue was up 33%. But on the whole, at least what we're hearing in the surveys we're seeing, we feel pretty good about the commercial market. Speaker 500:12:32Yes. Thanks. And then on the second half of next year, do you still think you could grow off of this really strong base you've had in the second half of twenty twenty four? Or do you kind of view growth as decelerating quite materially? I'm just trying to get a sense of the cadence across the four quarters. Speaker 200:12:55Yes. I mean, listen, we feel like we can grow, but there's so much uncertainty in the market between interest rates and the broader economy that it's hard to predict. But we feel like we can grow even off of even when compared to again our really strong second half of twenty twenty four. Speaker 500:13:17Okay. Great. And just one last on this topic for me. Just wanted to get a sense of what you think really caused this dramatic step up in the back half of the year? I know we've been talking about the markets at some levels being kind of locked up as parties looked for real visibility on where transactions would clear. Speaker 500:13:39Have we kind of reached a tipping point now where buyers and sellers have found equilibrium and pent up demand is really getting pulled through? Speaker 200:13:48Yes. Well, I mean, I think there was a couple of factors going. I think for one, the Fed action was helpful. The election, what the election was behind us. So there was some more certainty about the election. Speaker 200:14:01There's a lot of debt maturities coming up or they, parties had to either sell or refinance. And then to your point, I think price discovery is probably further along than it's ever been. So the market is starting to settle a little bit. And that will continue on I think into next year. Speaker 500:14:21Okay. Great. Thanks for the comments. Operator00:14:27Our next question is from Terry Ma with Barclays. Please proceed. Terry, please check and see if your line is muted. Speaker 600:14:40Yes, it was on mute. Thank you. Good morning. I just wanted to ask about kind of how to think about just title revenue growth expectations for this year. It looks like in 2024 ex any net realized losses, you guys did about kind of 6%. Speaker 600:14:55But most of it came in the back half and particularly in the fourth quarter. And you did indicate where you believe we're in the early stages of a real estate cycle. I think Fannie and MBA are projecting anywhere from 8% to kind of 9% purchase volume growth for this year. So any way to help us kind of think about kind of what the revenue growth expectations for the title business are this year? Speaker 400:15:21We break it out in markets, Terry. We feel like we're going to have growth similar to where the NBA is saying. I mean, obviously, it's hard to say, but I think somewhere in that range makes sense. I think on the refi side, it's probably even harder to say. We're going to have more growth in refis and purchase this year the way things are going, but it's off such a low base. Speaker 400:15:43It's probably not that material. And then Ken just kind of talked about the commercial business growth. So those are our three major markets. And the good news for us is we've got tailwinds in all three of them. So in terms of growth rates, it's still early. Speaker 400:16:00It's hard to say. But we feel confident that we'll grow in all those three markets, which are the most important ones to us. Speaker 600:16:11Got it. That's helpful. And then I guess, if those expectations play out, how should we kind of think about margin expectations? Should we Speaker 400:16:17be kind of modeling or Speaker 600:16:17thinking about, kind kind of like the success ratio? Speaker 200:16:26I'd say, Terry, that keep in mind, despite some very challenging markets over the last two years, we've had a 10% margin. I think if we get these sort of modest tailwinds that we've been talking about and we get some improved investment income and we'll continue controlling costs that we should be able to improve margins at least commensurate with the market. Speaker 600:16:51Okay, great. Thank you. Operator00:17:03Our next question is from Bose George with KBW. Please proceed. Speaker 700:17:09Hey, guys. Good morning. Actually, I just wanted to follow-up on the margin question. So I guess with the restructuring, actually, can you quantify the benefit there on the margin? So yes, all else equal, what would that have pushed up the margin? Speaker 700:17:24And then I assume the increases you talked about are kind of above that level. Is that right? Speaker 400:17:33Yes. You're talking about the strategic portfolio rebalancing project we did. Speaker 700:17:37Yes, exactly. Speaker 400:17:38So we did that in Q3 and we talked about how we would get $67,000,000 of benefit because of that. And so we've gotten some benefit in Q3. We got the full run rate here in Q4. And so when we look in 2024, everything else being equal, we'll get a 40 about a $42,000,000 investment income pickup and pretax income pickup because of the portfolio rebalancing project and that's compared to this year. So 2020 I'm sorry, 2025, we'll have $42,000,000 more of investment income than we did in 2024 because of the rebalancing project. Speaker 700:18:19Okay. And I mean, if I back of the envelope, it seems like that would be 50 ish basis points for the margin. Does that seem right? Yes. Okay. Speaker 700:18:29And then just going back to Ken's comment about the improvement in margin being commensurate with the market. So like so this year you guys did 10.3% margin, so we can add the 50% and then is it some improvement over that? Is that kind of the building blocks to the margin in 2025? Speaker 200:18:50Yes, I think it's probably at least that. I mean, we could get some lift too from additional cost control and additionally and potentially additional improvements in investment income if we are able, for example, to capture additional deposits from other channels we're looking at. So it's yes, it's at least commensurate with the market. Speaker 700:19:11Okay, great. Actually, and then just one on investment income. That number was up obviously quite a bit this quarter. Just can you talk about the run rate for that number in 2025? Speaker 400:19:23Yes. So when we were on this call in Q3, we really guided to like $140,000,000 to $145,000,000 investment income in Q4, because of the there was a lot of noise with the rebalancing project. And we came in at $155,000,000 So we're $10,000,000 higher than the high end of our forecast. So we really outperformed our own expectations in Q4 mainly because commercial was so strong. So commercial deals were stronger than what we expected. Speaker 400:19:52We hold escrow deposits in connection with these commercial deals. We can earn investment income with connection with these commercial deals. So that was all positive. So when we look next year for the full year of next year, we feel like we're going to grow investment income. On the one hand, we've got the $42,000,000 benefit that we just talked about from the portfolio rebalancing project. Speaker 400:20:15The negative though is we have had three rate cuts here in the fourth quarter and who knows what the Fed is going to do next year. But we at least have a $45,000,000 headwind going into next year because of the Fed rate cuts, right? So those two kind of wash out, but we still feel like we're going to grow investment income because of the market is Speaker 500:20:33going to grow, commercial is Speaker 400:20:34going to grow, we feel like we can grow our warehouse lending business and shift some more strategic deposits to the bank. So we expect growth in investment income on a year over year basis. When you look at the quarters though, we expect our investment income to drop Q4 to Q1 just because of seasonality. We're just holding less escrow deposits, investment income is going to fall in Q1. But that's just there is a seasonal factor to it. Speaker 400:20:58But on a year over year basis, we expect growth. Speaker 700:21:01Okay, great. Thank you. Speaker 500:21:03Thanks, Bruce. Operator00:21:06Our next question is from John Campbell with Stephens Inc. Please proceed. Speaker 300:21:12Hey, guys. Good morning. Congrats on a great quarter. Speaker 200:21:15Good morning. Thanks John. Good morning. Speaker 300:21:17Hey, so you guys obviously put up really good title pretax margin expansion. You're lapping a pretty disruptive 4Q last year. But if I look at the prior year, so fourth quarter twenty twenty three, you guys, oddly enough, put up the exact same level of title revenue, ex gains and losses. You almost had the identical level of that higher margin commercial rev, too. But the main difference was obviously the investment income is about $23,000,000 higher this year. Speaker 300:21:44I think some might look at that and say you guys should be put at higher margins. And I believe a lot of that or a portion of that higher investment income does get offset by higher title interest expense. So Mark, I'm hoping maybe you could just clear that up, walk through the mechanics there and then talk to the sensitivity of the bank driven investment income to interest expense offset? Speaker 400:22:09Yes. Thanks for that, John. So first of all, in terms of the offset, so most of our investment income is driven by our investment portfolio and our escrow deposits. I mean those are the two big drivers. There's other drivers, including our warehouse lending business, which does have an offset to interest expense. Speaker 400:22:32There's also another driver where our bank pays a cost of funds too. But most of it's the biggest piece is driven by the portfolio and there is no offset on interest expense there. So you're right, some of the growth we saw here in Q4 was because of our warehouse lending business and there's a corresponding offset on the interest expense side. In terms of our performance versus two years ago, 2023 was still a tough year. I mean, the market was still in decline and we were still in the process of cutting expenses. Speaker 400:23:07And so there just is a lag there. I think when we look today at our 51% success ratio, I mean, we're obviously coming out of the trough and we're proud of how we've been managing our expenses here. And we still feel like we can hit those success ratios going into next year. Speaker 300:23:23Okay. That's helpful. And then on the escrow driven upside, from commercial activity, is there a rule of thumb? I know it probably is not exact here, but for every $1,000,000 or call it $10,000,000 whatever it is for commercial revenue, how much of an upside that typically provides for investment income? Speaker 400:23:42There's no rule of thumb here. I mean, we're typically getting, let's call it, fed funds on our deposits. Commercial deposits, I mean, some of those deposits we get to keep for our benefit. Some of those deposits we don't get to keep because investors want to put it at third party banks for different reasons. So there's really not a rule of thumb. Speaker 400:24:00I mean, the way we model internally is all of our escrow deposits. I mean, I think that getting fed funds is that's the rule of thumb. But in terms of how it translates from commercial revenue to investment income, it's tough. There's just a lot of different factors going on. Speaker 300:24:15Yes. I can appreciate that for sure. And one more here on the info and other line within title, a good bit better than we expected. I'm just hoping to get just kind of a broad update there. I know ServiceMac, you had some revenue headwinds there. Speaker 300:24:29I saw deferred revenue was actually up a decent amount in their last quarterly filing. So I don't know if they're getting that business back on track or refilling the bucket, so to speak. So maybe you could talk to that and then some of the other drivers within that line? Speaker 400:24:43Yes. So the three big drivers are the biggest driver was our international business and rates have come down in Canada. And there's more refis. There's been there's a 175 basis point reduction in rates in Canada, which has really driven refis. So that's the biggest driver there. Speaker 400:25:03Close to that though is there's a well, I'll just call it U. S. Title. So there's a lot of business that we get that's not premium related, right? It's just property reports and other services and products that we provide that aren't risk based that go into that line item. Speaker 400:25:20And so as we've seen growth in commercial and resale and refi, we're naturally going to grow info and other just because of our non risk based products. And then the third component that really drove it was growth in our data and analytics business, which we've been growing for quite some time now. So those are the three big drivers in info and other. Speaker 300:25:40Okay. And I mean it's not a huge part of the business, so it might not matter too much here. But any kind of clarity on the pretax margin kind of profile for that segment or for that subsegment? Speaker 400:25:53No, because there I mean, if we had one, we'd share it. It's really just a collection of I mean, we've got 10 business units here and every business unit has a slice of info and others. So it's really not a standalone business. It's just a it's really it really represents the non risk based revenue that we have in all of our business units. So we don't have there's not one margin for it. Speaker 300:26:17Understood. Thanks guys. Speaker 400:26:19Thanks John. Operator00:26:22Our next question is from Mark Hughes with Truett Securities. Please proceed. Speaker 700:26:29Yes. Thank you. Good morning. Good morning. Mark, you had mentioned a $6,000,000 change in estimate. Speaker 700:26:35Did that flow 100% to the pretax line? It did, yes. Speaker 400:26:42And it's really deferred, so it hit the fourth quarter and we're going to we'll recapture it over 2025. But yes, it did hit revenue and pretax. Speaker 700:26:52Okay. Then any comment on the office market? It sounds like commercial is firing on all cylinders. Does that include office? Speaker 200:27:01Yes. I mean, office, Mark, wasn't a big component of our commercial revenue last quarter, but it is coming off the sidelines, particularly suburban office. But there is an increase, I think, in office activity. Speaker 700:27:23Question on the home warranty. When I think about that business, you've seen good growth in direct to consumer. It looks like the time on market is going up, inventory is going up and maybe that motivates some sellers to throw in warranties as the sweeteners. What do you think about that idea? Any sign of that in your results? Speaker 200:27:54Yes. Absolutely. I think as you get to a more buyer driven purchase market, you'll see more activity in home warranty. In fact, the real estate channel, again, that's the sales in connection with the purchase and sale property was a driver of our performance in the fourth quarter for home warranty. So I think your theory on that is right. Speaker 200:28:18As you go into a buyer driven market, you'll see some sprinkles added in with home warranty. Speaker 700:28:26Great. Thank you very much. Speaker 400:28:28Thanks, Mark. Operator00:28:31There are no additional questions in the queue. That will conclude this morning's call. We would like to remind listeners that today's call will be available for replay on our company's website or by dialing (877) 660-6853 or (201)Read morePowered by