First American Corporation (New)

Greetings and welcome to the First American Financial Corporation first quarter 2020 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. If anyone should require operator assistance during the conference, please press star zero on your telephone keypad. A copy of today's press release is available on First American's website at www.firstamerican.com. firstam.com forward slash investor. Please note that the call is being recorded and will be available for replay from the company's investor website and for a short time by dialing 877-660-6853 or 201-612-7415 and you'll enter a conference ID 13701584. We will now turn the call over to Craig Barbario, Vice President of Investor Relations, to make an induction, oh my gosh, an introductory statement.

Good morning, everyone, and welcome to First American's earnings conference call for the first quarter of 2020. Joining us today will be our Chief Executive Officer, Dennis Gilmore, 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 fact. 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. For more information on the risks and uncertainties, please refer to this morning's earnings release and the risk factors discussed in 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 width and reconciliation to the most directly comparable GAAP financials please refer to this morning's earnings release, which is available on our website at www.firstam.com. I'll now turn the call over to Dennis Gilmore.

Good morning, and thank you for joining our call. Today, I will comment on First American's response to the pandemic and its impact on our business. Mark will comment on our first quarter earnings, financial expectations for 2020, and capital management. Throughout the pandemic, our first priority has been to keep our employees and their families safe. Early in the process, we activated our business continuity plan, which includes giving our employees the ability to work from home. Today, the vast majority of our workforce is working remotely. For those that do come to the office, we are taking extra precautions and following CDC guidelines. Consistent with our people-first philosophy, we have committed to our employees that we will not make any layoffs through the end of the second quarter. We strongly believe that this is the right approach given these unique circumstances. We've taken a long-term perspective, and although this action will negatively impact our short-term results, we believe the benefits to our people, our customer, and ultimately our shareholders will be worth the investment. However, if the economy continues to deteriorate for an extended period, we will review all measures to control expenses as we have done consistently in the past. Our second priority has been to maintain service levels to our customers. The settlement services we provide are critical, and we have been deemed an essential service across nearly all states. Individuals, businesses, and lenders need title and closing services for the transfer of real estate or to secure a mortgage. and we've worked tirelessly to maintain business continuity despite the disruption caused by the pandemic. We've experienced minor disruption to our operation when the stay-at-home orders were first announced, but those issues were quickly resolved. These stay-at-home orders have come at a time when refinance volumes are surging, amplifying the strain on the industry. Throughout 2019, we have launched a number of automation efforts leveraging our deep data assets including Clear2Go, an engine designed for our central refinance channel that has been expanded to our branch and agency operations, covering a significant portion of our refinance transactions. This has helped us increase productivity and manage service levels at a time when volumes have soared. We will continue to focus on the advancement of numerous automation efforts across the business. I'd like to shift gears now and discuss the current market environment. Our purchase business was off to a strong start in 2020 and until mid-March when orders fell sharply. For the first three weeks of April, open purchase orders are down 43% relative to the same three weeks of 2019. We've seen West Coast markets decline approximately 50%, while other places, such as the Midwest, have fallen only 35%. The good news is, although orders have fallen severely, they appear to have stabilized. The 43% drop we are currently experiencing has been consistent since the beginning of April, and it appears we've reached a floor. For the first three weeks in April, refinance open orders have averaged 3,000 per day, up 120% over last year. This strong volume is serving as a natural hedge to our declining resale business. So far in April, revenues in our commercial business have dropped sharply, down 44% from the same period of 2019. Commercial transactions in industries such as retail, hotels, multifamily have slowed considerably due to the uncertainty of underlying cash flows. In other areas of our business, low mortgage rates have triggered strong growth in volumes. Our data business has benefited from strong demand as refinance volume has more than offset the decline in purchase. Our DocuTech acquisition, which we closed March 2nd, has seen transaction volumes up over 150% compared to 2019. DocuTech advances our ability to provide lender customers with end-to-end digital mortgage and settlement services. The events of the last few weeks have accelerated the adoption curve for e-close and First American is well positioned for this industry change. Our home warranty business continues to perform well. With purchase transactions declining, we continue to focus on the direct-to-consumer channel, as well as policy retention efforts. Our revenue growth is in line with our expectation, and we have seen a slight reduction in loss rate. Regarding title claims, we have not seen any increase in incurred claims. However, since the current economic conditions could result in an increase in claims, we've elected to raise our title loss provision rate to 5% this quarter. We continue to have a strong reserve position on our balance sheet, and Mark will comment on the title loss provision rate in detail in his comments. Our team is rising to meet the challenge of providing great service to our customers, and we believe customers increasingly want to do business with a company that's built to last. We enter this crisis with a strong balance sheet, and we can put our capital to work in this market by continuing to fund our innovation efforts and by making opportunistic investments when others can't. For the last several years, we have been on a journey to digitally transform our business, and the recent events have validated that our strategic path is the right one. We will continue to expand our data assets, further automate our title production, and continue to digitize our closing process. While we don't know when business will return to normal, we are confident that we will emerge in an even stronger leadership position when it does. I'd now like to turn the call over to Mark.