Craig Barberio - Director of IR Dennis Gilmore - CEO Mark Seaton - EVP & CFO Bose George - KBW.

Mark DeVries - Barclays Eric Beardsley - Goldman Sachs Bose George - KBW Jason Deeleuw - Piper Jaffray Ryan Byrnes - Janney Capital Markets Kevin Kaczmarek - Zelman and Associates Mark Hughes - SunTrust.

Greetings, and welcome to the First American Financial Corporation First Quarter 2015 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.

[Operator instructions] A copy of today’s press release is available on First American’s website at www.firstam.com/investor. Please note that the call is being recorded and will be available for replay from the company’s investor website in for short time by dialing 877-660-6853 or 201-612-7415 and enter the conference ID number 136-068-35.

We will now turn the call over to Craig Barberio, Director of Investor Relations, to make an introductory statement..

Good morning, and thank you for joining us for our first quarter 2015 earnings conference call. Joining us on today’s call will be our Chief Executive Officer, Dennis Gilmore; and Mark Seaton, Executive Vice President and Chief Financial Officer.

At this time, we would like to remind listeners that management’s commentary and responses to your questions may contain forward-looking statements, such as those described on Page 4 of today’s news release, and other statements that do not relate strictly to historical or current fact.

The 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 the results to differ materially from those set forth in these forward-looking statements. Factors that could cause the anticipated results to differ from those described in the forward-looking statements are also described on Pages 4 and 5 of today’s news release.

Management’s commentary contains and responses to your questions today may also contain certain financial measures that are not presented in accordance with Generally Accepted Accounting Principles, including personnel and other operating expense ratios, adjusted personnel cost, adjusted operating cost and success ratios.

The company is presenting these non-GAAP financial measures because they provide the company’s management and investors with additional insight into the operational efficiency and performance to the company relative to earlier periods and relative to the company’s competitors.

The company does not intend for these non-GAAP financial measures to be a substitute for any GAAP financial information.

In the news release that we filed today, which is available on our website www.firstam.com, the non-GAAP financial measures disclosed in management’s commentary are presented with, and reconciled to the most directly comparable GAAP financial measures.

Investors should use these non-GAAP financial measures only in conjunction with the comparable GAAP financial measures. With that, I will now turn the call over to Dennis Gilmore..

Good morning and thanks for joining the call. I will begin with the review of our first quarter financial and operating results followed by a few comments regarding our outlook for 2015. Revenues in the first quarter were $1.1 billion up 10% from last year. The increase was driven by strength in our refinance in commercial businesses.

Our closed refinance orders were up 62% compared to last year. The operating mortgage rates in early January triggered a surge in order volumes. Our open refinance orders peaked at approximately 2,600 per day in the first two months of the year that have leveled out at approximately 2,000 per day in March and April.

Our commercial business show continued strength in the first quarter with revenues up 28% compared to last year. A number of large deals closed in the quarter which helped drive the average revenue per order up 24%. We continue to see broad based strength throughout the commercial business.

Revenues in our purchase business increased 9% compared to last year. Closed purchase orders were up 2% and the average fee per purchase transaction grew 7% during the quarter. Our Title Insurance pre-tax margin was 6.8% in the quarter compared with 4.6% last year.

Not only have we benefited from improved market conditions, but we continue to focus on expense management. Our success ratio was 57% in the first quarter better than our current 60% target. Headcounts increased by lesser than 1% despite a 30% increase in open orders compared to the fourth quarter of 2014.

We’re being cautious with our hire and giving the volatile nature of refinance orders choosing to rely on overtime and temporary employees as our primary method of handling the increased order volume. Overall our Title Insurance business performed well and is typically seasonally difficult quarter for the industry.

Revenues in our special insurance segment were $95 million up 8% compared to last year. Pre-tax margin was 18% driven by lower personnel costs and favorable claims experience. Earnings in the segment are typically counter seasonal to our title segment with improved earnings in the winder due to lower claim frequency in our home warranty business.

And the first quarter home warranty posted all time record earnings. Turning to the outlook for 2015, we remain optimistic as April is off to a good start with purchase orders up 8% compared to last year driven by strong growth in new home sales. All indications point to an improving spring selling season relative to what we experienced in 2014.

Our refinance volumes are stabilized and overall pipeline remains robust. As we discussed in our last call, we continue our focus on the new integrated mortgage rule that becomes effective August 1, 2015.

This new disclosure rule requires the replacement of three existing disclosure forms that have been used by all industry participants for many years. We continue to spend significant time, resources and work very closely with the lending community to ensure that our systems and our workflow are ready for this significant change.

Given the magnitude of the change, we do anticipate some temporary delays in closings on orders opened after August 1, as the mortgage industry adapts to the new disclosure requirement.

However, we believe the implementation of the new rule will present a growth opportunity for First American as a settlement service provider who is prepared to deliver the highest quality work in this new environment. In closing I would like to invite the investment community to attend our Investor Day on May 20, in New York City.

At this meeting you will hear from many of our executives as I discussed the company’s strategy and provide greater detail on the company’s operation. I would now like to turn the call over to Mark for more detailed review of our financial results..

Thank you, Dennis. Total revenue in the first quarter was $1.1 billion up 10% compared to the first quarter of 2014. Net income was $38 million or $0.34 per diluted share compared with net income of $22 million or $0.20 per diluted share in the same quarter last year.

The current quarter results include net realized investment losses of just under $1 million or $0.01 per diluted share. In the Title Insurance and Services segment direct premium and escrow fees were up 23% compared with last year.

This growth was driven by 15% increase in a number of direct title orders closed and an 8% increase in the average revenue per order. The average revenue per order increased to $1,865 driven by higher average fees for all major order types.

The average revenue per order increased 7% per purchase transactions, 8% for refinance transactions and 24% for commercial transactions. We continue to see a number of large commercial deals closed which had a positive effect on our average revenue per order. Agent premiums were up 1%, while the agent split was 80.3% of agent premiums.

Information and other revenues totaled $146 million, up 6% compared with last year driven by the impact of recent acquisitions offset by lower demand for the company’s default information products. Personnel costs were $331 million, up $31 million or 10% from the prior year.

This increase was primarily due to higher incentive-based compensation driven by the improvement in revenues and profitability as well as higher salary expense driven by recent acquisitions. Other operating expenses were $189 million, up $19 million or 11% from last year.

This increase is primarily due to higher production-related costs and temporary labor expenses given the increase in order volumes. The ratio of personnel and other operating expenses to net operating revenue was 79.0% an improvement from the 82.4% we posted in the first quarter of last year.

The provision for title policy losses and other claims was $56 million or 6.5% of title premiums in escrow fees compared with the loss provision rate of 6.0% in the same quarter in the prior. Pre-tax income [indiscernible] with $70 million in the first quarter compared with $43 million in the first quarter of 2014.

Pre-tax margin was 6.8% compared with 4.6% last year. Turning to the specialty insurance segment total revenues were $95 million up 8% compared with last year driven by higher premiums earned in both the home warranty and property business lines. The loss ratio for the segment was 51% a slight decrease from the 52% experienced last year.

Pre-tax margin for the segment was 18.2% driven by record earnings in the home warranty business. Net expenses in the corporate segment were $28 million in the first quarter up $6 million relative to the prior year.

$4 million of this increase was driven by onetime non-cash charge relating to our benefit plans which was reflected in our investment income line item. The effective tax rate for the quarter was 35.9% in-line with our normalized tax rate of 36%.

In terms of cash flow, cash used for operations was $66 million versus $105 million in the first quarter of last year. The change was primarily due to higher net income and improvements in working capital.

Capital expenditures were $32 million up from $21 million in the first quarter of last year due to increases in capitalized software and capitalized data. Turning to capital management, debt in our balance sheet totaled $586 million as of March 31.

Our debt consists of $549 million of senior notes, $34 million of trustee notes and $3 million of other notes and obligations. Our debt-to-capital ratio as of March 31 was 18.3%. I would now like to turn the call back over to the operator to take your questions..

[Operator Instructions] Our first question comes from the line of Mark DeVries with Barclays. Please proceed with your question..

Yes, thanks. I know historically you have indicated that there is roughly two-third poll through from home price depreciation to ARPO.

However, ARPO was for both the residential [indiscernible] grew 7% to 8% year-over-year, what’s driving the strong increase relative to the HPA here?.

Yes Mark. Thanks for the question. This is Mark. One of the things we are seeing is we are seeing the average revenue per order in terms of big states like California and Texas, that's what really driving the purchase ARPO.

So, when you look at California, our average fee profile in California for purchase reductions was up about 7% or 8% similar with Texas. So, we are really seeing kind of a more higher priced homes being sold in some of the bigger states and that's really what we are seeing this quarter..

Got it.

And then, also ARPO was really strong in commercial, I think Dennis alluded to a couple of chunkier transactions can you give us the sense of how much of that maybe one or two big transactions contributed to that 24% year-over-year growth there?.

It’s really two things. We had a big increase in ARPO up 24% driven by a number of large transactions we completed in the quarter so clearly I drove it, but we also just saw an overall increase in a number of large transactions in general that also help drive it up..

Okay. That's helpful.

And then, finally your GE capital is looking spell pretty large commercial real estate portfolio at the Blackstone here as part of their spinoff plan do you have any sense on how large of an opportunity that could be for the other commercial title business?.

I really don't know at this point..

Okay. Got it. Thanks..

Thank you. Our next question is coming from the line of Eric Beardsley with Goldman Sachs. Please proceed with your question..

Hi. Thank you. I just want to clarify, talking about purchase orders being up 8% in April.

Was that open or closed?.

That's opened orders..

Okay and where do you see the closed trend in April?.

So far, on the closed side it does about 6% and we are talking April month today versus April month in last year, 6% on the closed and 8% open..

Got it.

And on the refinance side are you – when do expect to see that start to tail off for you to have rates stand here, is that something that will see the benefit go through the end of the second quarter or is that going to end earlier sometime around May?.

Well no, we do think that the refinance on the close side are going to start to tail off in March we closed about 1700 a day. April we are running roughly 1500 a day and we think we will start to trickle down in May and June as well.

But on the open side though it seems like refinance lease for now has leveled up it peaked at about 2600 and they have been pretty consistent at the 2000 level in March and April and so we do think on the close side it’s going to tail off but if its open and continue to stay where they are we think we can have some good refinance business in the second quarter.

.

Great.

And just lastly have you had any incremental OpEx related to mortgage disclosure rules you mentioned using time and resources for those?.

Yes, there absolutely has been OpEx and we spent a lot of time and effort training our people, I had to spend capital upgrading our technology system which wouldn't necessarily going to OpEx but that's one reason why our capital expenditures are up significantly versus last year so we have had really spent a lot of money in training and systems to get ready for these new disclosure rules coming on in August..

Got it.

Is there any benefit we see coming to third quarter or any of those expenses come out?.

No I think in terms of the training and the technology we feel like we are going to be there at least for the rest of the year and then I think starting in 2015 we will start to see those specific cost to win..

Okay.

Is there any way to size those?.

We don't, I wouldn't say its material to the operations. It’s probably material to the CapEx number but not for the overall spent base..

Okay. Great. Thank you..

Thank you. Our next question is coming from the line of Bose George with KBW. Please proceed with your question..

Good morning. Just a follow-up on the commercial question.

In most years your commercial fee profile is the lowest in the first quarter then trends up not just with the strong first quarter do you think the trend could be different this year?.

I actually think that CD will probably drop a little but going into the rest of the year. Again we had a number of very large deals close in the quarter but as I said earlier we just had a larger number of large deals moving through the first quarter. So it’s kind of a combination of both.

But again I would suggest that they probably going to drop down, the offer will start to drop in the second or third quarter..

That's okay. Thanks and then just question on the title best acquisition that you guys did earlier this year.

Just anyway do you sort of quantify the potential benefits of that?.

Yes, it was a part of our acquisition strategy. We want to continue to look for tuck-in acquisitions in our key states. New York being one of them. It give us a nice little uptick in our direct footprint in the U.S. From a size perspective it’s in the mid 20 range in revenue so nice to us but not that material..

Okay. Great and then just one more, the last quarter you guys said you had about $125 million of excess capital I guess some was used for title best.

I am just curious any other plans for excess capital that you can highlight?.

Now, it is just again no change there. We will continue to look to invest in the business or do acquisition if they fit our criteria. We have looked at a lot of transactions over the last couple of quarters they just haven't had the returns we want or there has been other issues, just haven’t pulled the trigger so we keep active in looking..

Okay. Great. Thank you..

Sure..

Thank you. Our next question is coming from the line of John Campbell with Stephens. Please proceed with your question..

Hi guys this is [Peter Blair] filling in for John Campbell.

Can you guys give us your organic revenue growth on the title side?.

It was nearly about 10% on the title side this quarter I mean we did a couple of acquisitions. The title that we just talked about really closed in March so there wasn't really anything meaningful there. And we did a couple of acquisitions in March of the last year but the organic growth was about 10%..

Got you. Thanks for that and then also it looks like agent retention rate came in a little bit higher than this.

It looks like it’s up year-over-year, can you talk about the drivers there whether that's geographical or just maybe more of just to take mortgaging share there?.

Yes this is Dennis. It’s definitely not because of share we are not using our retention for our share gain perspective. It’s really geographic distribution right now. So it’s really running item line with what we expect to be right around that 80% number..

Got it.

And then lastly if I can real quick it looks like 50 or so direct agency split in the quarter and I think that was more like 45% in one 1Q 2014 what’s driving that direct market shift, is that refi or commercial or is there something else there?.

Yes, the agent revenue came in a way and that's really what we think driven by the sharp uptick in refinance when we see a real quick uptick in refinance the majority of that business typically goes to direct shops with big central service platforms like ours, our mortgage solutions grew.

So we think this is merely what happens with the market and the title revenue being generated quickly..

Thanks for the question..

Thank you. Our next question is coming from the line of Jason Deeleuw with Piper Jaffray. Please proceed with your question..

Thanks guys.

Just looking at the April open orders that were reduced 8% did you break that out between purchase and refi?.

Let me give you the first answer and let Mark take the second part of it. The 8% is on approaches only. .

Okay. Okay.

What about on the refi side?.

I am sorry.

Can you repeat the question?.

Just looking at the – okay, it was 8% open purchase orders then, got it.

Could you break out refi as well?.

Yes, refinances were up 40% in April on the open side..

Okay. Great. Thanks. And then, what about your title provision.

It looks like it’s about 6.5% is that a good rate to think about going forward or could be take out down a little?.

Well, I think for the next couple of quarters we intend to book at 6.5% so I think that's our intent at this time. I think over a longer period of time we would definitely expect to see that loss provision rate come down in the 5.5% range but we are going to be cautious and for the next two or three quarters continue to book at 6.5%.

Our claim this quarter came the lower our expectations and they have done that last two or three quarters now but we’re just kind of looking at the conservative end of the range given our experience in the past..

Okay. Got it. Great. Thanks. Thanks. And then, just looking at the margin, so the strong, you guys came in very strong in the first quarter here.

Do you guys still think the 10% pre-tax title margin is it attainable for the full year or what do you guys trending right now?.

I think it is. I think we are optimistic we are off a good start. We had a good first quarter and if we continue to see leverage and the growing on the revenue we will get the leverage in the business that's our intent right now.

So if the business continues the way it is and if the trend continues to develop positively like we think it will, we are optimistic that we can exceed our margin from last year..

Alright. Great. Thanks for question..

Thank you..

Thank you. Our next question is coming from the line of Ryan Byrnes with Janney Capital. Please proceed with your question..

Thanks. Good morning guys. Just had one question I guess on the $3 million of corporate kind of investment income that was a negative I am kind of assuming that was from the pension plan.

Should we expect that to recur throughout the year I think you guys mentioned with one timer but on the last call you said made $9 million in the year I just want to make sure I understand that..

They are two separate issues. The pension expenses that we book we wouldn’t expect change for the year what I talked about in my script it was $4 million onetime charge letting to – we terminated [indiscernible] to a company life insurance policy so it was really one time we don't expect it to repeat going forward..

And then the – but the pension drag should we see that continue through I am just trying to figure where that would be flowing through would that be through the investment income side or where that be the personnel cost flowing going through?.

The pension will go through personnel cost in the corporate segment..

Got you. Thanks for the color guys. .

Thank you..

Thank you. [Operator Instructions] Our next question is coming from the line of Kevin Kaczmarek with Zelman and Associates. Please proceed with your question..

Hi guys. I just had a question on the investment portfolio. It seems there was a pretty big rise in the quarter-over-quarter maybe by half a billion.

Is that just the investment from the escrow deposit or is something else driving that?.

There are a few things driving it. One is yes, we absolutely are getting more business into investment in escrow deposit.

Another thing is we have started to use some outside managers for our portfolio so we just had I would an usual amount of cash at the end of the year at the 1231 that we have invested in Q1 so those are really the two primary reasons like why cash is down and investment is up..

Okay and so I assume that's a good run rate for the investment in balance going forward and on the yield is it should the yield on those new investments be similar to the rest of the portfolio or you are going to invest is that going to be treated as more like a cash amount where maybe investors that are how much lower yield?.

I would say the yields on those investments are probably slightly higher. I mean right now our yield is running somewhere in 2.0 to 2.1 and I think it will be slightly higher than that but not materially more than that. But it’s not in cash though. They are in marketable securities..

Okay. Great. Thanks. All my other questions have been answered. So thanks a lot..

Thanks Kevin..

Thank you. Our next question is coming from the line of Mark Hughes with SunTrust. Please proceed with your question..

Thank you. Good morning.

The outlook for potential market share gain related to the new disclosure rules could you talk a little bit about that I think you mentioned last call that you picked up maybe 120 basis points of share in 2014 and hope to repeat that, what do you think now?.

Well two separate issues we are doing well in our market share initiatives. We did pick up about 100 basis points last year, about 160 basis points over the last two years. So we think that activity will continue really hitting the objectives we have set up for the company. Separate issues with any disclosure.

We just think that there will be a lot of disruption in the market and we are working diligently to be as prepared as possible when we think we are in the new disclosures come online we will be ready for it and we just think there will be a little disruption in the market which will allow us to pick up some share at that point also different than a long term share gain strategy..

How meaningful could that be?.

It’s literally impossible to make the call right now because we don't at this stage know the level of disruption. We will see when the new disclosures go under effect August 1..

The paid title claims were little higher this quarter year-over-year by – how do you think that will look for the full year?.

Paid title claims were unusually high this quarter.

We had two large claims, two of the largest claim we had ever paid in our history that hit in Q1 we had $20 million claim that we paid that was previously for early last year we had another $15 million claim that we paid this quarter that was has been reserved for a couple of years and sometimes when we reserve for them it takes a while for us to actually pay them.

And so our paid claims were $89 million and that was up 14% from last year but if you take out these two – these literally two claims our paid claims were down 30% from last year.

So paid claims are lumpy anything can happen in any one quarter but over time we absolutely expect our paid claims are going to continue to fall and fall meaningfully from where they are right now. .

Thank you..

Thank you. There are no additional questions at this time. This does conclude this morning's call. We would like to remind listeners that today’s call will be available for replay on the company's website or by dialing 877-660-6853 or 201-612-7415 and entering the conference ID number 13606835. The company would like to thank you for your participation.

This concludes today's conference call. You may now disconnect..