First American Corporation (New)

Greetings, and welcome to the First American Financial Corporation fourth quarter and full year 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 a 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 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 201-612-7415 and enter the conference ID 1373-5364. We will now turn the call over to Craig Barberio, Vice President, Investor Relations, to make an introductory statement.

Good morning, everyone, and welcome to First American's fourth quarter and full year 2022 earnings conference call. 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 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. 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 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 at our website at www.firstam.com I will now turn the call over to our CEO, Ken DiGiorgio.

Thank you, Craig. At the very beginning of 2022, many expected the strength of 2021 to continue into the year. Early on, however, we saw that the cycle was turning. As a result, we began to sharpen our focus on expense management. Due in part to these early expense management efforts, the benefit of growth in net investment income, and a record-setting year in our commercial business, First American achieved a full-year title segment pre-tax margin of 10% or nearly 12% excluding net investment losses on total revenue that declined 9% to $7.5 billion. Continuing challenging market conditions weighed on our fourth quarter financial results. In the quarter, we generated revenue of $1.7 billion and earnings per diluted share of 52 cents or $1.35 per share, excluding net investment losses. In our title segment, we delivered a pre-tax margin of 7% or 10% excluding net investment losses. The key drivers of these results were our ongoing focus on expense management and continued growth in investment income. Our specialty insurance segment also contributed with a pre-tax margin of 14% or 18% excluding net investment losses. Turning to our key title businesses, refinance has been declining for the past two years, so it's now at trough levels. In January, we opened 324 refinance orders per day, down from over 1,100 per day a year ago. Our open purchase orders were down 37% this quarter. Based on our order trends, we are seeing early signs of stabilization with open purchase orders improving from down 40% in November to down 37% in December and down 31% in January. The recent decline in mortgage rates combined with lower home prices has led to some improvement in affordability and therefore demand. which makes us cautiously optimistic that the purchase market is in the early stages of recovery. Our commercial business had a record year in 2022 with revenues up 2%. However, open orders have been meaningfully declining over recent months. Open orders were down 27% in the fourth quarter, and this downward trend has continued in January with open orders down 20% compared with last year. While uncertainty remains high, our expectation for our commercial business in 2023 is that it will be another good year, but below 2022's record level. Despite the challenging environment ahead of us, we believe the company is well positioned to emerge even stronger when the current down cycle ends. Our healthy balance sheet allows us to continue to actively pursue capital deployment opportunities including investing in key strategic initiatives and acquisitions, as well as returning capital to shareholders. We continue to make good progress at Endpoint, our digital title and settlement company, and on our instant title decisioning initiative for purchase transactions. These investments today will pay out over time by adding efficiency, improving the way customers interact with us, and importantly, freeing up our people from process-oriented tasks to further enhance their ability to focus on delivering superior customer service. On the M&A front, we continue to have the financial flexibility to pursue attractive opportunities that may arise. And during 2022, we returned $658 million to shareholders through share repurchases and dividends. In closing, I want to thank our employees for all their hard work and accomplishments in 2022 and for their dedication as we navigated through the sharp downturn in the real estate market. It is their professionalism, talent, and customer focus that drives our company's continued success. Now I'd like to turn the call over to Mark for a more detailed discussion of our financial results.