First American Corporation (New)

Greetings. Welcome to First American Financial Corporation's second 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. 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.firstam.com. 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 locally 201-612-7415 and enter the conference ID number 1370-6905. I will now turn the conference over to Craig Barberio, Vice President, Investor Relations, to make an introductory statement.

Good morning, everyone, and welcome to First Americans Earnings Conference Call for the second 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 facts. These forward-looking statements be going 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 these 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 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 will now turn the call over to Dennis Gilmore.

Good morning, and thank you for joining our call. Today, I'll provide an update on First American's response to the coronavirus pandemic, review the current market environment, and highlight our progress in our data and digital initiatives. Mark will give a rundown on our second quarter earnings, review the company's capital and liquidity position, and provide an update on last year's information security incident. In response to the pandemic, our priority has been twofold. To keep our employees safe while meeting all the service needs of our customers. Early on, we activated our business continuity plan, which enabled most of our people to work from home. Currently, approximately 80% of our workforce is working remotely. It is likely we'll remain in this posture until the end of the year. During our last earnings call, we discussed the no layoff commitment we made to our employees to the end of June. At a time of great uncertainty, we viewed it as an investment in our employees and one consistent with our philosophy that emphasizes a long view. It turned out to be a good decision. Our most recent surveys reveal record levels of employee engagement. As importantly, when order volumes rebounded more quickly than expected, We had our trained workforce in place to fulfill the needs of our customers. Our April forecast projected a 45% year-over-year decline in open purchase orders in the second quarter. Our actual experience has been materially better, with just a 15% year-over-year decline. Our residential purchase business has experienced a broad, consistent recovery since the trough in April, when orders fell 38%. The recovery started in May when orders were down just 10%. Then we saw a 5% growth in June, and so far in July, our orders are up 6%. Buyers who postponed purchases in the spring have returned during the summer as the traditional seasonality curve has shifted. On the refinance side, open orders continue to be elevated. In the second quarter, we averaged 2,900 orders per day, in line with our April forecast. So far in July, we are opening 3,100 orders per day. We continue to believe that the refinance market will remain elevated for the remainder of the year. In our commercial business, revenues in the second quarter declined 39% from the prior year, better than our April forecast of a 50% decline. In response to the economic uncertainty, we've seen a slowdown in activity across all commercial asset classes in the second quarter. and it's our expectation that the segment will remain under pressure for the rest of the year. However, we have seen an improvement in open orders in the recent weeks, with July commercial orders down just 10% versus last year. Other areas of our title segment have benefited from an increase in overall transaction activity. Revenues in our database solutions business were up 12% this quarter, and DocuTech continues to exceed our expectations. Turning to our special insurance segment, two factors have driven elevated claims in our property and casualty business. First, we strengthened reserves for prior period claims by $5 million. Second, we incurred a higher number of large claim losses this past quarter, which we believe may be due in part to the pandemic. Our home warranty business continues to perform well. Although we have seen an increase in claim frequency this quarter, particularly in the appliance trade, which we attribute to the pandemic, our direct consumer sales have been strong, leaving our initial outlook for 2020 unchanged. We continue to make progress in our plan to digitally transform our business, and we believe the pandemic has accelerated the demand for digital closing services. We have three main areas of focus, data leadership, title automation, and digital closings. This quarter we closed 29% more orders than in 2019, while our US headcount remained flat. This is partially attributed to the work we've already done to automate and optimize the workflow of our title production process. Because title automation is data dependent, we continue to invest heavily in our data assets. Through our patented automated data extraction process, we can accurately capture title and property information more efficiently than ever. enabling us to collect a more comprehensive set of data for the same cost. We believe we have broader coverage and deeper, more comprehensive title and property databases than any other company. Lastly, we continue to work on a number of initiatives to digitize our core closing capabilities. One notable effort we have underway is Endpoint, a digital title and escrow company we launched in 2018. In just 18 months, Endpoint has a 2% market share in Seattle. We've launched in Southern California this quarter and currently entering the Phoenix market. Also, although it's still early days, Endpoint has seen rapid initial success in offering buyers, sellers, and real estate professionals a digital mobile-first user experience. The investments First American has been making over the past few years to secure its data leadership, accelerate title automation, and enable digital closing has put us in a superior position to add value for our customers as the digital innovation transforms a mortgage and home buying experience. I'd now like to turn the call over to Mark.