First American Corporation (New)

Greetings. Welcome to First American Financial Corporation's fourth quarter and full year 2024 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. Should anyone 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 this call is being recorded and will be available for replay from the company's investor website for a short time by dialing 877-660-6853 or 201-612-7415 and enter the conference ID 13751214. We will now turn the call over to Craig Barbiello, Vice President Investor Relations, to make an introductory statement. Please go ahead.

Good morning, everyone, and welcome to First American's fourth quarter and year-end 2024 earnings 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 yesterday's earnings release and the risk factors discussed on our Form 10-K and subsequent SEC filings. Our presentation today also 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 gap financials, please refer to yesterday's earnings release, which is available on our website at www.firstam.com. I will now turn the call over to Ken DiGiorgio.

Thank you, Craig. 2024 continued to be a challenging year for our industry, particularly in the residential purchase and refinance markets. Relatively low inventory, elevated home prices, and mortgage rates hovering around 7% have together produced a home sales market that is as low as we've seen since the mid 1990s. High mortgage rates have also kept refinance volumes at trough levels. Through this ongoing downturn in the market, we have maintained our commitment to invest in the business. making considerable progress with our strategic initiatives while remaining focused on expense management with an emphasis on optimizing our information technology environment. Despite these generally challenging conditions, at the end of the year, we did, however, benefit from a surge in our commercial business and began realizing the full benefit of our strategic investment portfolio rebalancing project. In all, we delivered an adjusted pre-tax title margin of 10.3% for the year. In the fourth quarter, we delivered excellent results. Title premiums and escrow revenues were up double digits across all key business lines, highlighted by 47% growth in our commercial revenue. In our commercial business, we saw broad-based strength across all asset classes, with industrial and multifamily leading the way. Our investment income of $155 million in the title segment exceeded our expectations. And our success ratio was 51% this quarter on net operating revenue growth of 25%, reflecting our continued focus on expense management and the benefit of scale in our business. Our adjusted pre-tax title margin for the quarter was 11.8%. Our home warranty segment had a good quarter. posting revenue growth of 4% and an adjusted pre-tax margin of 18.2%. During the quarter, we continue to invest in our direct-to-consumer channel, which accounted for 42% of our contracts written in 2024, and which we expect will improve profitability as the lifetime value of these new policies is realized over time. Turning to the outlook for 2025, While we are planning for mortgage rates to remain elevated, we expect modest improvement in both the residential purchase and refinance businesses. Though still early, we are already seeing this in our results. For the four weeks ending February 7th, our purchase orders were up 1% and our refinance orders were up 43% compared with the same period in the prior year. Our commercial business is off to a strong start with revenues up 24% in January. We expect our commercial business will have a good year with revenue growth weighted to the first half of the year, given the 33% increase experience in the second half of last year. On the whole, 2025 will be another year of earnings improvement in what looks to be the early stages of the next real estate cycle. In closing, I would like to comment on the widespread damage and devastation from the recent wildfires in the Los Angeles area, which unfortunately directly impacted several of our people and customers. Our thoughts are with them and the many others who have suffered through this terrible event. Our company's roots in Southern California and the greater Los Angeles area date back over 135 years. So all of us at First American feel a responsibility to help our colleagues, neighbors, friends, and families cope with this tragedy. Our company, along with many of our employees, have responded to that call. I want to thank our people for all they have done to provide support and relief to those affected. Now I'd like to turn the call over to Mark for a more detailed discussion of our financial results.