First American Corporation (New)

Greetings and welcome to the First American Financial Corporation fourth quarter and full year 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 by entering the conference ID 137-14735. We will now turn the call over to Craig Barbario, Vice President of Investor Relations, to make an introductory statement.

Craig Barbario Good morning, everyone, and welcome to our 2020 fourth quarter and year-end earnings conference call. 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 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 fourth quarter earnings call. 2020 was another strong year for First American. Our revenues were running well above the prior year and then the pandemic hit, impacting our business overnight. Our top priorities were to protect our people and serve our customers, and we achieved both. We quickly transitioned the majority of our employees to working from home and still closed over a million real estate transactions in 2020. This accomplishment testifies to the dedication of our people and their commitment to our customers. It also validates our many digital investments we have made to improve the customer experience. I'd now like to shift my comments to the fourth quarter results. We generated earnings per share of $2.49. Excluding realized investment gains, earnings per share were $2.11. Revenues in our title insurance segment were up 26% in the fourth quarter, and we effectively managed our expenses, achieving a 53% success ratio, which contributed to a pre-tax margin of 18.9%. Our focus in automating title production and digitizing the closing process paid off in 2020. In a year of rapidly surging volume, we closed 32% more orders this quarter than the prior year with just 6% more employees. Our direct purchase revenue rose 32% in the fourth quarter. We experienced an 18% increase in closed transactions and an 11% increase in the average revenue per order. This growth is a sign of the continued strength of the housing market. Refinanced revenue continued to benefit from low mortgage rates, with revenue rising 79% over the prior year. Commercial rebounded strongly in the fourth quarter. Since the onset of the pandemic, commercial has been slower to recover than residential. Commercial revenue was down 39% in the second quarter, 29% in the third quarter, and the fourth quarter improved to a 5% decline off an all-time high fourth quarter of 2019. We are encouraged that the order momentum over the last few months has picked up and we expect to have a strong commercial year in 2021. Turning to our specialty insurance segment, revenues were $141 million, a 7% increase over the prior year. As we disclosed in January, our property and casualty business entered into a book transfer agreement, which provide qualifying agents and customers an opportunity to easily transfer their policies. As of February 1, we are no longer quoting new policies and expect to discontinue policy renewals in May. We anticipate the transfer will be complete by the end of the third quarter of 2022. This transaction enables us to maintain focus on our core business and redeploy the capital to areas with higher expected returns. In the fourth quarter, we raised our quarterly dividend from 44 cents to 46 cents. and we repurchased 1.3 percent of our shares outstanding at an average price of $49.20 and have continued our buying in 2021. We believe both the short-term and long-term prospects of First American are stronger than the market is giving us credit for and as a result have aggressively repurchased shares. Turning to our outlook, early indications are that the real estate market will remain robust this year. The strong open order pipeline we built in the fourth quarter is converting to revenue at what is traditionally our slowest period. In January, our purchase orders were up 17%, and we opened 3,200 refinance transactions per day, continuing the same trend we experienced for the last several months. As previously mentioned, we think this will be another good year for our commercial business. While we are encouraged by the strength of our markets, We remain focused on the long-term opportunities of our business. In 2021, we will continue to invest in automation of our title production process and in the refinement of our digital closing platform. We plan to increase our technology span in the areas of product development, cloud migration, and security. And we are building digital solutions across our company to transform the customer experience. An example of this is Endpoint, our title and escrow company that was built from the ground up to deliver a reimagined closing experience. We believe these investments will enable us to continue to generate strong earnings for the years to come. I'd now like to turn the call over to Mark for a deeper dive into our financials.