Greetings and welcome to the First American Financial Corporation Second 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. [Operator Instructions] 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 and for a short time by dialing 877-660-6853 or 201-612-7415 and entering the conference ID 13640685. We will now turn the call over to Craig Barberio, Director of Investor Relations to make introductory statements.

Good morning everyone and welcome to our second 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. Some of the statements make today may contain forward looking statements that do not relate strictly to historical or current facts. These forward looking statements to be growing as of the days they have made, and the Company does not undertake to update these 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 the today’s earnings release and the factors discussed in our form 10-K and subsequent SEC filings. Our presentation today contain certain non-GAAP financial measures that we believe provide additional insides and the operational efficiency and performance of the Company relative to the earlier period and relative to the Company’s competitors. For more details on these non-GAAP financial measures including presentation with and reconciliation to the most directly comparable to GAAP financial measures, please refer to today’s earnings release which is available on our website at www.firstam.com. With that, I will now turn the call over to Dennis Gilmore.

Thanks, Craig. And good morning and thanks for joining our call. I will begin with a review of our second quarter highlights and conclude with a few comments on our outlook for second half for the year. The positive momentum in our business continued into the second quarter. Our EPS was $0.92, up from $0.85 last year. Our strong results were driven by its higher segment, which delivered a free tax margin of 13.7%, the highest in the Company’s history. Our margin in this quarter benefitted from our ongoing focus on operating efficiencies, a favorable title claims rates and the continued recovery of the housing market. And our residential business purchase revenue grew by 5% nearly all this growth was driven by higher average revenue per order. Our quarter's purchase orders were essentially flat compared to last year with many areas of the country continuing to experience assurance of housing inventory. Refinanced revenues were up 2% during the quarter, lower interest rates drove our refinance volume up 20% relative to last year, which will add significantly to our order pipeline going into the second half for the year. Our commercial revenues were down 2% in the quarter. Despite global uncertainties, our commercial business continues to see broad based strength across the majority of asset classes and geographic markets, and we continue to experience healthy levels of transaction activity. Revenues in our special insurance segment grew by 7% during the quarter. However, we experienced higher claim losses in our home warranty business, which caused a segment pretax margin to decline to 5%. In May, we announce the termination of our pension plan, the Company currently incurs expenses of approximately 22 million per year related to this legacy plan. When the termination of the plan is complete, we anticipate saving a singular…

Thank you, Dennis. Total revenue in the second quarter was 1.4 billion, up 3% compared with the second quarter of 2015. Net income was 102 million or $0.92 per diluted share. The current quarter results include net realized investment gains of 8 million or $0.05 per diluted share. In the title insurance and services segment, direct premium and escrow fees were up 1% compared with last year. This increase was driven by a 3% increase in the average revenue per order, partially offset by 1% decrease in the number of orders closed. The average revenue per order increased to $1,972, primarily due to higher residential real estate values. The average revenue per order increased 5% for purchase transactions, and 2% for commercial transaction. Agent premiums were up 3% reflecting the normal reporting lag of agent revenues of approximately one quarter. The agent split improved 50 basis points to 78.3% due to a shift in geographic mix. Information and other revenues totaled 182 million, up 1% compared with last year. The increase was driven by acquisitions offset by lowered demand for the Company's default information products. Personal cost were 390 million, up 2% from the prior year, excluding acquisition this increase was primarily due to the higher salary and stock based compensation expense, offset by lower incent of compensation. Other operating expenses were 196 million, up 1% from last year. The ratio of personal and other operating expenses to net offering revenue was 71.6%. The provision for title policy losses and other claims was 57 million, or 5.5% of title premiums and escrow fees, compared with a loss provision rate of 6.6% in the same quarter of the prior year. During the second quarter, our paid title claims still 18% from the prior year. Pre-tax income for the title insurance and…

Thank you. [Operator Instruction] Our first question is from the line of John Campbell with Stephens. Pleased proceed with your question.

This is Hayden, congrats on the good quarter. Quick question on the agency business, we are hearing the same sort of geographic shift to commentary from the competitor. So, I am just wondering for you guys, what are some of the moving pieces shaping that agency strategy moving forward? And what would it take for you guys to or would you even want to grow that business at a similar rate as we are seeing at some of your peers?

Well, first, a couple of things for that question, number one, we are really excited about our agency channels and what's going on there. With regards to growth, we had a very good quarter, and I think that trend will continue actually I am very optimistic looking into the third and fourth quarters. If you recall, we take our agency revenue on a cash basis, so our refinance orders are going up significantly, so I think that bodes well for the third and fourth quarter for the agency book. Specifically to local market conditions, we are always looking at the profitability of any markets, our returns, our risk profile, and we adjust accordingly. So I think, there is a lot of opportunity for future growth. But at the same time, we'll control some of our markets too. I'll give you an example In Utah, the risk profiles have changed in Utah. So that’s a market that we're probably going to shrink a little share. We are going to focus in on only the most, well capitalizations in that market, and that’s just an example, we are always going to kind of tune the dial depending on profitability and risk.

And then one more with the recent revisions of the MBA estimates, I am wondering if you guys feel any different about the potential to hit the high end of that 10% to 12% pretax margin, the origination market is now projected to be up year-over-year?

Well last year we -- during our Investor Day, we disclosed that we are trying hit this 10% to 12% margin goal and we did that last year. And last year, we had a 10.2% margin. So far for the first half of this year, we are exceeding where we were in the first half of last year in terms of margin and so we are going to continue to try to move up to the higher end of that 10% to 12% margin range. So the fact that we are getting a little bit of refi help certainly helps us in that regard.

And so would you say, it's as much of a function of overall origination volume as it is the purchase refi mix or what's going to kind of be the better driver of that when we look on kind of the multi year basis?

I would say, it's both but I would say if I had to pick some of more important just the overall level of originations. I mean, we love the purchase market, but we like refi too. So the overall level of origination is certainly a factor. Our purchase business is typically higher margin than our refinance business so that helps us, but will take refi all day long.

Our next question is from the line of Jeremy Campbell with the Barclays. Please proceed with your question.

Just to piggyback on that one again -- again, in the first half of last year you guys didn’t really have to much up as much to meet those refi volumes as you maybe you had in the past. With refi volume up 90% year-over-year in July, what is the outlook on having to kind of staff up to meet those type of levels? And how long do you think that, that kind of could persist through the remainder of the year?

Yes, thanks for the question. I don’t really anticipate us changing our staff levels much at all to handle the volumes. If anything it will probably just allow us to go with higher staff that we normally carry in the second quarter a little longer. We will probably deal with mostly through overtime in some temp support.

So, is it fair to say then that refi, elevated refi volumes could have a pretty positive impact under your margins for the back half?

I think, it's definitely going to help us, no question. We are heading into the slower time of the year from the residential standpoint. So clearly building a book going into the last half will help us. It allow depend on how long it last and what the closing ratios are, but clearly we are optimistic to see the benefit we are getting right now from refinance.

Great. And then just finally, with the cash contributions you have to make regarding the whole pension program or things like that, does that all preclude you from looking at opportunities to do since selective M&A in the market or you guys comfortable enough with your cash position and/or taking leverage up a little bit if something, if a big softball really fell across the plate for you?

First of all with the pension contribution, we think the right thing for the Company and we are looking forward to getting that complete over the next few quarters, wrapping up probably by the third quarter of '17. But no, it will not preclude us from pursuing any acquisition that we think are productive for the Company.

Our next question is from the line of Chris Gamaitoni with Autonomous Research. Please proceed with your question.

I was wondering, you mentioned on the purchase order, I think year-over-year growth attributing it to shortage of housing inventory. I mean certainly a concerned, but I am struggling to find any geography where orders are down year-over-year, so I was just wondering if there is anything else going on, if it's a shift to more agent business and the purchase channel, is there any strategy to address the kind of purchase growth relative to market volumes?

Well, one thing I would say is that in terms of our purchase volumes, orders have been flat relative to last year. And it's really been like that out for the whole year. We don’t really think we are losing a significant share or anything like that. I would say that our orders that we get and that we disclose, those are from our direct business. And our direct business is very concentrated in the Western states. And so a lot of markets statistics that are higher than what our order counts are presenting are more national statistics. So, as a general rule as you know our East Coast is more agents dominate and our West Coast is more direct dominate. I’ll say that we have over the last 12 months, there have been certain offices in places like Oregon and Washington, and Kansas, where we had a direct opposition and we transitioned it to an agency operation. And we did that because a lot of these offices were really in rural areas and the economics were just better in these areas and the agency model than direct model. So that has had some, I would say minor impact on our orders, but it is the factor.

Okay. Then on the on the specialty insurance business that’s we've had a couple of kind of quarters of increasing cost, is there plan to reprise customers on a next premier renewal? Or kind of what's the strategy to address that, should we expect the lower or higher combined ratios or do we think premium pricing is coming through?

A little of both to kind of a mix bag on specialty right now, the top line, we like it a lot, it's growing well. So, I think that trend will continue. But in our home warranty, we've had really two issues going on there, higher contract service cost and higher replacement cost for our equipment. So we really have a two-pronged approach. We're putting additional resource back into the contract now to kind of be beef that up, and we are seeking price increases now across the country. But that will take us probably a full year to see it flow through the P&L, because we have to go the renewal cycle. So two-pronged approach and I think that will get data as we go forward.

Thank you so much.

It's just going to take a little time on that one.

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

I wondered if you could talk about the potential for the policy loss ratio to come down a bit, last year your ultimate losses or your underlying losses were lower than what you had booked, what should we see going forward?

Well, last year we booked at 6.6% loss rates for the whole year and we felt comfortable enough to bring that loss rate down to 5.5 in the first quarter, and we really kept it at 5.5, this quarter. Claims are in line with our expectations this quarter. I think, it's more likely for the loss rate to come down rather than it to go up. I mean, it can always go up, if we had an extraordinary claim or something like that. But when you look at the actuarial data, our current policy or support something closer to a 5.0%. And we are just booking it kind of the conservative end of kind of a reasonable range of estimates. So we are comfortable with 5.5. That's what we see in the foreseeable future. But of course, we analyze our claims experience every month. And I have just said that I think it's more likely at this point the loss rate will come down and then go up.

Our next question comes from the line of Bose George with KBW. Please proceed with your question.

First, the revenue from the information and other segment is up pretty nicely, can you give us any color on that, is there a data revenues starting to coming more meaningful there?

I've figured the few things happening there, the first is, we are seeing decline in that line item because of the default business just because of how the market has been ramping our default business within that line is down about 25% year-over-year. We are seeing an offsetting increase in our data business some of that organic and some of that because of some recent acquisitions that we have done in that basically nets to flat growth year.

And then as we just turn back to the pension plan termination, the cash outlet is that the 100 million and then the 22 million annualize that you said, is that cash savings as well?

The 100 million in cash again that’s a best estimate, the 22 million of P&L so it's a little apples and oranges, but I would say over the last three years we have been putting in somewhere between 20 million and 25 million of cash a year into the pension plan. So they happened to be similar numbers but the 22 million is P&L.

Our next question comes from the line of Ryan Byrnes with Janney. Please proceed with your question.

Just looking with the pension, is that deal in place and in right price out, I am just trying to figure out if you can have any wiggles if interest rates move one way the other?

I would say the deal is not finished yet, no I mean there are some factors we are going to participants and offer lump sum payments. And the rate at which our participants will accept those lump sum payments is uncertain. After that then we are going to actually go out and buy newly contract for the liabilities and the pricing of that is uncertain. But the biggest factor in the pension is really is just interest rate. And once we made the decision to terminate the pension, we hedged our liabilities and in hindsight, that has been a big win for us because interest rates have come down quite significantly since we actually jump in, made the decision to terminate the pension. And that’s going to have the biggest factor on the funding requirements. So I think it is going to change, the 100 million cash is going to change, and the 197 million of P&L ultimately will change. But I don’t think, it's going to change that materially since we have basically hedged our liabilities at this point.

Okay, and thanks for the color. And then just quickly when your competitors announced this morning, they had done seven agency deals, just want to gauge your appetite for those type of deals and I think exactly just get your thoughts there?

Sure, we are a pretty full deal pipeline right now, looking at a lot of different kind of deals and that’s number one on our list to see if we can acquire agents that fit our strategic map, in our key states, we would be attracted to. So, we are looking at a lot of deals. I do think that trend will continue over the next 12 months.

Are there any geographies that you guys are particularly interested in?

We always focus in on the top five states in the Metro areas, but we would look at anything if it makes sense, but again we are focused primarily on the top five states.

The next question is from the line of Eric Beardsley with Goldman Sachs. Please proceed with your question.

Just a quick follow-up on the specialty insurance, I guess as you go through this period just with the elevated cost, how do you think that the margins in that business on a go forward basis?

I think that's going to around a little less than it had over the last few years. Our second and third quarters will be our toughest quarter because of the weather and just the volume of claims will bounce back in fourth and first. So again, but we're putting resources into the contract network right now, so I think that will start to show some benefits for us the next couple of quarters. The pricing efforts that have been ongoing and will continue, we will start to see those benefits when we go through a full year cycle of policy renewal.

Got it. Is this the right year-over-year trend to think about in terms of margin compression or was there more elevated cost just because of weather been more severe in the second quarter?

I guess from just to be a conservative position, take it as a trend we are going to hope to do better.

Okay. So your third quarter then would actually be negative margins or you kind of at the same cost level that you were last third quarter?

It's hard to say because a lot of it is claims dependent. And when you're looking at our Specialty Insurance segment, we got our P&C business that we can always have in advance, but at this time, if you look at last Q3 of last year, we had a 1.10% margin. And we would hope to better than that of Q3 of this year, but a lot of it is dependent on our claims experience.

Great, I’ll just add again, what we always do on all of these type of businesses when we get little out of whack from a return standpoint, we are going to go to fix it operationally up from an operation standpoint, and we'll look to adjust prices to make sure we get the necessary returns.

Our next question comes from the line of Kevin Kaczmarek with Zelman and Associates. Please go ahead with your questions.

I guess on this specialty insurance as you phase in pricing much you lose a little volume, I mean you mentioned you expect that growth to continue above like it is but could it may be moderate on the top line because of this?

Obviously it's possible, but so far we haven't had volume reduction from price increase, but we will have just play that out as it goes. I think end of the day, we are going to make sure we get the necessary returns and that will be more important to us than volumes.

Okay. And I guess quickly on that information and other revenue, you guys mentioned international mortgage operations were up bit of drag in the release, is that from currency? Is that more of an organic headwind? I guess we expect that maybe to also drag in Q3? Or is that something that could reverse if currency is moved?

I would say, a little bit of it was currency related and more of it I would say just market-related. We have a really strong business in Canada. Canada represents roughly 75% of our -- even it maybe 80% of our international business. So we have got real strong position there. And we have also got a good position in UK and Australia. And those of the markets that are mortgage profits in revenue, which is in risk basis and somewhat down from last year. So a little bit of currency but more of it just sort of market driven.

Okay. And I guess on commercial orders, can you give us a sense of how it has been trending on a monthly basis, in terms of year-over-year improving or deterioration?

Yes, so on the open side, it's a little hard to tell because what really matters in commercial what we look at it, is sort of the average fee profile because it depends on the quality of voice, but really on a monthly basis. In April, in terms of open, we opened 520 orders a day. In May, it was 500; and in June, it was 490 orders a day. So they have been declining little bit, but I think what we look at more is kind of the quality of the underlying orders.

Is that, I guess when you consider -- were those closed orders?

That was open, yes, that was open orders.

Do have a sense and you're combining that with fee profile, do you have a sense of that kind of revenue trend throughout the quarter?

Well, our revenue in commercial this quarter was down about 2% from the second quarter of last year. The orders that we are opening now obviously going to close, in commercial too, it's not like they close on a consistent basis like the residential business where it's 50 to 60 days. We can have a commercial orders open today and won't close for six months. But generally speaking, I would say we feel good about the commercial pipeline, we are still getting good high quality deals in. But the orders that we are open now is we don’t really have a strong sense with the ultimate average revenue forward is going to be.

Our next question is from the line of Geoffrey Dunn with Dowling & Partners. Please proceed with your questions.

I guess first, I think I just missed the tail end of your commentary about early July, if you could reiterate what you might be seeing in the first couple of weeks, please?

Geff, it's Dennis. Refinance orders are up strongly, we are up 90% from a year ago, running at about 2,800 orders per day now.

How about overall?

Overall orders per day are about 5000 a day.

And then on the agency front, Fidelity, yourselves, Stewart, all have been expressing an appetite for agency acquisitions with a full pipeline, I am curious to what you are seeing in terms of competitiveness for deals? Are you running up again other players in a competitive bit situation or is everybody pretty spread out to seeing reasonable pricing?

A couple of parts to that question, you do see competitive situations in certain transactions, but we are seeing price points that acceptable to us. So what we are looking at right now has a necessary risk adjusted return and when we look forward with it, if we close a deal. So not too bad right now Geff, and if the prices get too influenced, we would just not move forward.

The next question is from the line of Jason Deleeuw with Piper Jaffray. Please proceed with your questions.

On the title rate pricing changes, is there -- does that apply equally to purchase and refinance or there are any differences there?

I would say generally, we are getting more of a benefit as we purchase transactions. But we look at our average fee profile for refi, it really hasn’t -- it's a 1% or 2%, but it really has -- we haven't done the benefit like we did in purchase markets. So, I would say that most of our rates emphasis is in purchase business. I would say purchase title premiums as well as escrow.

Okay and then for the agent channel M&A activity obviously the title insurance companies the underwriters are more aggressive there but are the agents seem self? Are they more eager to sell? Is there have been some sort of a change maybe just with the increase regulatory requirements? Is there anything that’s driving agents to sell more so than you have seen in the past?

Not in my opinion, it just a normal ebb and flow of the business.