First American Corporation (New)

Greetings and welcome to the First American Financial Corporation second quarter 2022 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 the First Americans website at www.firstam.com forward slash investor. Please note that the call is being recorded and will be available for replay for the company's investor website and for a short time by dialing 877-660-6853 or 201-612-7415 and enter the conference ID 137-31471. We will now turn the call over to Craig Barbario, Vice President, Investor Relations, to make an introductory statement.

Good morning, everyone, and welcome to First American's earnings conference call for the second quarter of 2022. 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. Risk and uncertainties exist that may cause results to differ materially from those set forth in these forward-looking statements. For more information on these risk 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 I'd now like to turn the call over to Ken DiGiorgio.

Thank you, Craig. The company delivered strong results in the second quarter with revenue of $2.1 billion and earnings of $1.01 per share or $1.97 per share excluding net investment losses. Our title segment margin was 11.7% or 13.9% excluding net investment losses. While we operate in a cyclical business, we have a strong presence in all market segments, including resale, refinance, commercial, new home, and default, which can provide a level of diversification. So while rising interest rates have slowed our residential business, our commercial business, for example, has grown an impressive 30% this quarter and is on track to achieve another record year. We are also beginning to realize the benefit of higher interest rates at our bank and on other escrow and tax deferred exchange balances. Investment income increased by $23 million in our title segment this quarter, and we now expect to add $200 million to annualized investment income by year end, up from the $150 million that we discussed with you on our last call. As I suggested earlier, our residential purchase business declined this quarter. open orders were down 12% with June down 18% compared with last year. So far in July, this trend is continuing with open purchase orders down approximately 20% compared with last year. Given the decline in residential real estate activity and the uncertain economic outlook, we continue our focus on expense management. As you would expect, We are acting most aggressively in the business units with the greatest exposure to the declining residential market. We will see much of the benefit from these reductions beginning in the third quarter. Additional expense reductions are underway in July, and we are closely monitoring order levels to further balance expense levels as needed going forward. While we continue to manage our cost structure, we also remain steadfastly committed to investing in strategic initiatives that support our company's long-term growth and operational efficiency, despite their impact on near-term profitability. Significant among these is Endpoint, our digital title and settlement company that we built from the ground up. Endpoint has attracted leading talent that has developed technology to streamline the closing process and empower prop tech companies and investors looking to scale their operations. After demonstrating strong customer acceptance in early test markets, Endpoint is rapidly building a national footprint and is currently operating in 27 states and by year end expects to be licensed in 43 states. Another of these initiatives is ServiceMAC, the mortgage subservicing business we acquired last year. Since its founding in 2018, ServiceMAC rapidly achieved the sixth largest market share position. While ServiceMac has high potential as a standalone business, significant synergies exist with our other operations, in particular our bank, which can hold deposits administered by ServiceMac. Lastly, while we have successfully automated the title production process for certain refinance transactions, we are now focused on solving instant title decisioning for purchase transactions, which is more complex. Our industry-leading property record and title plant assets put us in a unique position to solve this problem, which, when solved, promises to improve the customer experience and increase our efficiency. We expect to test this instant decisioning initiative with customers in two large markets by year end. This quarter, we continue to prioritize share repurchases, acquiring 3.9 million shares and through July 27th, an additional 963,000 shares. Since the beginning of this year, we have repurchased approximately 6% of our shares outstanding as of the end of last year. Reflecting its confidence in the long-term prospects of our company, our board recently approved a new $400 million share repurchase authorization, which enhances our capital deployment flexibility going forward. Now I'd like to turn the call over to Mark for a more detailed discussion of our financial results.