First American Corporation (New)

Greetings and welcome to the First American Financial Corporation third 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 forward slash investor. Please note that the call is being recorded and will be available from the company's investor website and for a short time by dialing 877-660-6853 or 201-612-7415 and entering the conference ID 13733443. I'll now turn the conference over to Craig Barbario. Vice President Investment Relations, to make an introductory statement.

Good morning, everyone, and welcome to First Americans Earnings Conference Call for the third 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 speak 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. 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 would now like to turn the call over to Ken DiGiorgio.

Thank you, Craig. The slowing economy and rapid increase in mortgage rates continue to pressure our residential title business. Despite the challenging market conditions, we achieved revenue of $1.8 billion and earnings per diluted share of 2 cents, or $1.62 per share, excluding net investment losses. In our title segment, we delivered a pre-tax margin of 9.9%, or 13% excluding net investment losses. Two key factors, along with our continued focus on expense management, favorably impacted our third quarter financial results. First, our commercial business continued its strong performance and we remain on track to deliver another record year. Second, we continue to capture the benefit of higher interest rates at our bank on other escrow and tax deferred exchange balances and in our investment portfolio. This quarter, investment income in our title segment increased to $105 million, up 114% compared to last year. Based on the current forward curve for Fed funds and assuming escrow balances remain at current levels, We believe investment income in our title segment could be $600 million in 2023. Mark will go into greater detail concerning these assumptions. Refinance has been declining since early last year, so it's now near trough levels and no longer a significant contributor to our financial results. Our open purchase orders were down 23% this quarter, with orders declining each month throughout the quarter. And so far in October, this trend has continued with purchase order open orders down approximately 35% compared to last year. As we discussed on our last call, we remain committed to investing in strategic initiatives that support our company's long-term growth and operational efficiency, despite their near-term impact on profitability. Our initiative to deliver instant title decisioning for purchase transactions and Endpoint, our digital title and settlement company, continue to make progress. ServiceMac, our mortgage subservicing business, is rapidly achieving scale, and we now expect ServiceMac will be profitable in the final quarter of the year, a significant improvement from the $11 million pre-tax loss it booked in the second quarter. Despite the challenging environment ahead of us, we believe the company is well positioned to emerge from this cycle even stronger. The market has shifted away from refinance toward purchase and commercial transactions, which is where we are stronger, and consequently, we are growing our market share. We are also the only title company that has a bank, which enables us to better capitalize on higher interest rates. Our strong balance sheet will allow us to continue to invest in key strategic initiatives pursue acquisitions, as well as return capital to shareholders. I note that since the beginning of this year, we have repurchased approximately 7% of our shares outstanding as of the end of last year. In closing, I want to thank our employees for all their hard work and accomplishments as we navigate our way through a difficult market. Relationships are key to our business, and it's our talented and dedicated people who provide the connection to our customers, that ultimately drives our company's success. Given the importance we place on our workplace culture, I'm proud that First American was recently named one of the best workplaces for women by Great Places to Work and Fortune Magazine for a seventh consecutive year. Now I'd like to turn the call over to Mark for a more detailed discussion of our financial results.