First American Corporation (New)

Greetings and welcome to the first quarter 2023 First American Financial Corporation 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. www.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 entering the conference ID 13738122. We will now turn the call over Over to Craig Barbario, Vice President, Investor Relations, to make an introductory statement. Please go ahead, sir.

Thank you. Good morning, everyone, and welcome to First American's earnings conference call for the first quarter of 2023. 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. 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 Now I'd like to turn the call over to Ken DiGiorgio.

Thank you, Craig. Ongoing challenges and market conditions in the first quarter continued to weigh on our results, although a 136% increase in net investment income, along with our expense management efforts, enabled us to deliver a pre-tax title margin of 6.5%. Our home warranty segment had a strong quarter with a pre-tax margin of 15.3%. On a consolidated basis, we earned 44 cents per share, or 49 cents before net investment losses. A sharp decline in affordability, driven by mortgage rates above 6%, along with low inventory and elevated home prices, adversely impacted the housing market, and as a result, our residential purchase business. Currently, however, the purchase market appears to have stabilized. For the first three weeks of April, we are seeing typical seasonal improvement in the purchase order trend, with open orders up over 5% compared with March. Refinance open orders remained at trough levels in the first quarter, averaging 350 per day. the current pool of mortgage loans would need to see rates drop well below 5% to incentivize a significant uplift in refinance activity, which is highly unlikely in the near future. The weakness in the commercial market, which began in the back half of 2022, also impacted our results this quarter, with our commercial revenue down 39%. The decline in activity was seen across all regions and asset classes, including industrial and multifamily, and large deals were down 50% from last year. Commercial open orders were down 28% in the first quarter, and that order trend has continued into the first three weeks of April, with orders down 30%. While there is a high degree of uncertainty concerning the commercial market outlook, based on feedback we are getting from customers, we remain optimistic that transaction activity will improve in the second half of the year, given the progress made on price discovery during the first quarter and ample capital availability, notwithstanding the potential impact of the banking crisis on available credit. Our financial strength allows for continued investment in our innovation and other strategic initiatives, which are imperative to our long-term growth strategy. We continue to make progress at Endpoint, our digital title and settlement company, which now has a national presence. This month Endpoint announced the launch of its mobile notary platform, which streamlines the process of signing documents and real estate transactions. Our title company has begun to use the platform, the first time that the broader company has leveraged Endpoint's proprietary technology. As Endpoint continues to re-engineer the closing process, it will drive efficiency and improve the customer experience, not only for itself, but for other divisions of First American as well. During the last few quarters, we have discussed our initiative to develop instant title decisioning for purchase transactions, which also promises to improve our operational efficiency and expand our competitive advantage. Given the success of our early testing, we expect to deploy it in two markets within the next year. This next generation technology is made possible by a number of factors unique to First American, including our talented technology, data sciences, and underwriting teams, and the most comprehensive title and real property database in the industry, which is fueled by our proprietary data extraction technology. We also continue to make progress at ServiceMac, which turned cash flow positive last quarter and is now the fifth largest subservicer in the market after experiencing 62% revenue growth this quarter. In closing, I want to thank our employees who have shown resiliency through difficult market conditions. They've remained steadfast and committed to our company and our customers, enabling us to grow our market share by over two percentage points in 2022, which will pay dividends when the current cycle turns. I am also pleased to announce that First American has been named one of the 100 best companies to work for by Great Place to Work and Fortune Magazine for the eighth consecutive year. This accomplishment is a tribute to our unique culture and our people, who in addition to delivering best-in-class service, continuously find new and innovative ways to meet our customers' needs. Now I'd like to turn the call over to Mark for a more detailed discussion of our financial results.