Greetings and welcome to the First American Financial Corporation Fourth 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]. 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 and for a short time by dialing 877-660-6853 or 201-612-7415 and enter the conference ID 13652922. We will now turn the call over to Craig Barberio, Vice President of Investor Relations to make an introductory statement.

Good morning everyone and welcome to our 2016 fourth quarter and year-end earnings conference call. On today's call you'll be hearing from our Chief Executive Officer, Dennis Gilmore; 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 facts. 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 these 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 risk factors discussed in our form 10-K and in subsequent SEC filings. Our presentation today also contain certain non-GAAP financial measures that we believe provide additional inside into the company's operational efficiency and performance relative to the prior 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 GAAP financial measures, please refer to today's earnings release, which is available on our website at www.firstam.com. With that I'll now turn the call over to Dennis Gilmore.

Thanks Craig. Good morning and thank you for joining our call. I'll begin with a review of 2016 followed by our fourth quarter highlights and conclude with a few comments regarding our outlook for 2017. The company's 2016 performance was strong. Our earnings per share rose 18% to $3.09. Total revenues were up 8% driven by growth in our purchase and refinance businesses. Purchase revenue was up 6% as the housing market continues to improve. Our refinanced revenues increased 21% due to decline in mortgage rates. Our commercial business declined by 5% and finished with its second strongest year on record. Throughout 2016, we continued to manage our expenses effectively achieving a success ratio of 65% for our Title segment. Our Title business delivered an 11.7 pretax margin for the year, a record for the company and at the high end of our objective of 10% to 12%. The company's return on equity improved to nearly 12% also at the upper end of our stated objective. During 2016, we acquired a number of companies including Forsythe Appraisals, RedVision and TD Service. These acquisitions served to strengthen our core title and settlement business and enhanced the solutions we offer our customers. In addition each of these acquisitions leverages our industry leading property data to drive operating efficiencies and improve quality. In regards to capital management, in August, we raised our quarterly by 31% demonstrating our ongoing commitment to return capital to shareholders. We closed 2016 with a strong balance sheet and capital position and we continue to have significant financial flexibility to deploy capital in ways that create shareholder value. Turning to the fourth quarter, our earnings per share were $0.73. The quarter's results include $0.39 were up due to the first phase of our termination of our pension plan and…

Thank you, Dennis. Total revenue in the fourth quarter was $1.5 billion, up 11% compared with the fourth quarter of 2015. Net income was $81 million or $0.73.per diluted share. The current quarter results include $66.3 million or $0.39 per diluted share from the first phase of the company's pension termination and a benefit of $22 million or $0.20 per diluted share largely due to the release of reserves for uncertain tax positions from 2005 to 2009. In the Title Insurance and Services segment, direct premium and escrow fees were up 8% compared with last year. This increase was driven by a 24% increase in the number of orders closed, partially offset by a 12% decrease in the average revenue per order. The average revenue per order decreased to $1,958 due to a shift in the mix to lower premium refinance transactions. The average revenue per order increased 7% for purchase transactions and 4% for refinance transactions, while commercial declined by 8%. Agent premiums were up 9% reflecting the normal reporting lag of agent revenues of approximately one quarter. The agent split was 78.7% of agent premiums. Information and other revenues totaled $189 million, up 17% compared with last year. The increase was driven by the recent acquisitions of Forsythe Appraisals, RedVision and TD Service which contribute $27 million to revenue this quarter. Personnel costs were $424 million, up 11% from the prior year. The increase was primarily due to the impact of recent acquisitions and higher incentive based compensation and employee benefit costs as compared with last year. Other operating expenses were $205 million, up 14% from last year. The increase was primarily attributable to recent acquisitions and higher production related cost due to higher order volumes. The ratio of personnel and other operating expenses to net operating revenue…

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions] The first question today comes from Jeremy Campbell of Barclays. Please go ahead.

Hey. Thanks. So pretax title margins were only up about like 20 basis points year-over-year just for the realized losses for both periods, which is pretty muted you know when consider there was a 100 basis point reduction year-over-year in the provision rate, a 10% increase in net operating revenue and then last year you had title expenses that were in the P&L. When we think of the success ratio, I would have thought it would have been a starting point it was quite a bit lower because of title from last year. So when you look at this past quarter, what happened with regard to expenses? Was it all acquisitions or were underlying title expenses also kind of maybe a little higher than normal?

I don’t think there was anything unusual this quarter with respect to our expenses in our Title segment. We did have a little bit of a 401(k) true up that was about $4 million, which you know we don’t think was material. We look at our success ratio for the quarter and it was 86% which as you know was kind of higher than what we liked to be. We're trying to target less than 60%, but some of it because of the acquisitions we've done, and the acquisitions come in, it kind of altered the success ratio. We exclude acquisitions to 75% which is still a little bit higher where we want it to be, but for the full year, I think, we are happy with where our expenses are, our success ratio for the full year excluding acquisitions of 48% which is really a good outcome for us. But to answer the answer, there was nothing really extraordinary of expenses in Q4.

Okay. Then I know you said there was $27 million of acquisition related revenue better than the P&L. What about expenses?

Yeah. I would say that most of the values of the acquisitions close really right at the end of the third quarter and really at the very beginning of the fourth quarter, so we really have three months of revenue, and so I would say there has really been a negligible effect to earnings in the fourth quarter. I would say that we really happy with way these deals are being integrated so far, so we'll have more to report in the future, but I would say negligible effect.

This is Dennis. I would only add that the acquisitions came in later in the year and we were at the early stages of the integrations, so they were dilutive from a margin perspective in the fourth quarter.

Got it. And then at the end of the year you recently took a provision rate down from 5.5% to 5%. And I know on past calls, you guys had alluded possibly something similar happening. So just what's your outlook on provision rates for the upcoming year and could we expect a magnitude similar to what your competitor pursue?

I think the answer to your question is yes. So we've been booking at 5.5% all the year. The last couple quarters on these calls, we talked about the possibility of lowering the rate in 2017. As we sit here today, I think we feel more strongly about the number. I think our claims are coming in lower than expectations. I am not sure on the timing of bringing loss rate down it could happen in Q1, Q2 we'll have to kind of wait and see how claims come in, but we think that there is certainly more likely than not that will bring the loss rate down somewhere around 50 basis points plus or minus in the short term here.

Great. And then finally, Dennis, I know you've mentioned that your expectation for commercial will be down modestly in 2017. Would you characterize this year like 5% year-over-year reduction as a modest decrease or something more than modest?

I consider '16 as modest. We still packing up the commercial, '16 was actually a very good year for us, the really only difference between '16 and '15 was the velocity of large deals. There is always one thing and in the fourth quarter we actually had a couple lumpy deals and moved into the first quarter, so I think '17 is going to be another very good year for commercial. And you know we consistently what I have been saying now for like two years I think the market peaked through '15 probably normalizing now in '16 to '17, but again I think '17 is going to be a very good year for us.

Great. Thanks a lot guys.

Thank you.

The next question comes from John Campbell of Stephens Inc. please go ahead.

Hey guys. Just wanted to go right back to commercial real fast. Dennis, you said, you're expecting it to be pretty good year not trying to split hairs here. But I mean would you be pretty satisfies with the flattish year-over-year result or is that a little bit too optimistic?

I think that's a probably a little optimistic, but again really it's going to be driven by the numbered velocity for large deals. In '16 we have fewer large deals than we had in '15 and that impacts the revenue base. So we see pickup in large deals and it could be better, but again we're predicting flattish, downish a little bit like we saw in '16 going into '17.

Okay. That's helpful. And then just a little bit more color on what you're seeing out there. I mean if you look at Fidelity's local commercial business it was very much better than the national side which is typically the large deals and then I think Stewards has got a little bit more exposure to the kind of mom and pop or local markets and not as much in the larger markets. So can you talk about what you guys are seeing as far as smaller versus larger deals national versus commercial local?

Actually, local is up a little. Again the only real difference you're seeing in the book right now between '15 and '16 is a number of large deals which if you go back and you look at them over a number of years, large deals are always lumpy and they comment in a lumpy manner. So again I'm going to say, I think '17 will be another strong year for the commercial business.

Okay that's helpful. And then you guys have talked about the 10% to 12% Title pretax margin. If you look at the market, I guess, the forecast for '18 and '19, it looked like it's going to be close to that normalized range we’ve kind of talked about in the past. I mean do you guys like you can be at the higher end of that range over the next year or two?

Well, I don’t know if we're going to be at the higher or lower end of the range but how we're looking at the year right now '17, because we think that's an absolutely appropriate range for us even with the headwinds are facing in refinance, we think the commercial again is going to be strong, we think purchase is going to be strong, so we think the range is appropriate for '17 right now.

Okay. Then last one on the effective tax rate 34% is a good run rate going forward?

Yeah. That's a good run rate.

Okay. Thanks guys.

Thank you.

The next question comes from Jason Deleeuw from Piper Jaffray. Please go ahead.

Thank you and good morning. And just one more on commercial from me with the fear of larger deals or just the pure larger deals, is that just with interest rate backing up or is it more deal specific, the macro environment, the backdrop seems to be a little bit better at least the outlook. So I am just kind of wondering if there is anything that you see just kind of driving the deal flow in the larger deals or is it deals specific.

It's kind of, I would say it's deals specific. The one area that's been a little slow over the years in the (New York), a big mega deal is coming out of New York. And again it’s just nature of that business it will be lumpy on a year-over-year basis.

Got it. Thanks for that. And then on the January open orders for purchase. I must have missed that. I don’t think we got that. Do you have an update on the open orders for January on the purchase side?

Yeah, January open orders purchases are 1,700 a day which is basically flat from where we were in January '16.

Got it. Thanks for that. And then on HN channel, the M&A, is that still -- can you just update on your thoughts there? Is that still part of the strategy? Do you still see opportunities for title agents?

This is Dennis. Yeah we did that, that's been a consistent strategy of ours from many, many years and we continue to look to add to our direct footprint, acquisitions or (inaudible) in the top states, looking at a lot of deals, (inaudible) a lot of deals in the state. The issue for us which is very discipline what we paid for these transactions. We really make sure we can get return out of the acquisition.

Alright. Thank you very much.

Thank you.

The next question comes from Chris Gamaitoni from Autonomous Research. Please go ahead.

Good morning. Thanks for taking my call. I know it's early in the acquisitions, can you give us -- you said in the fourth quarter diluted to the margin, can you give us a view of what you think the impact on the margin is after your full year rate in kind of the pace at what we get there?

Well, yeah. The acquisitions that we've done are I would say, the margins with them are at least as high as 10%, 11% title margins, so we bring on the deals, initially there was a lot of integration, there is a lot of one-time costs and those one-time cost reflected in the fourth quarter and so. It's going to take us about 12 to 18 months to fully integrate, but once we do that we think the margins will be similar to where our overall title can be more (inaudible).

Chris, I'd only add, this is Dennis. I'd only add. We try to get the bulk of our integrations done in 12 months.

Okay. And then do you have any flattish purchase open orders year-over-year? It seems the market is still ticking up 4%, 5%, even thoughts on why the macro numbers are a little bit better than what you are reporting?

No, there is nothing unique going on I think that's how we just (inaudible). We are looking very careful in the first quarter any kind weather events can sway your numbers those kind of things, but when we step back, we are looking for a good purchase in 2017. We are looking for a nice continued upward move and that market, and all our signs we are looking at now, say that would be a possibility.

Okay. Well, thanks for taking my calls.

Thank you.

The next question comes from Kevin Kaczmarek of Zelman. Please go ahead.

I guess within the information in data business, I guess you now compete with CoreLogic ended on both data sales. How much has this helped the data business or how big is the market opportunity here?

Well, I am not sure what you're referencing. We don’t have a non compete okay sales to start with. It's not a significant piece of our business. Our data business is always around continuing to drive value and efficiencies that of our title company that's a main effort, so we can produce our products cheaper and low our risk profiles, that's number one. Then number two, we do sell our data back to one year's data products and services, there could be product sales there. Well, our primarily focus is driving efficiency in our title company out of the data businesses.

Okay. With the net line item, how much revenue still tied to default there?

In the fourth quarter, we had about $189 million of revenue in information rather and about $13 million default really (inaudible) at this point.

And Kevin, that's stabilized a number of quarters ago.

Okay. And I guess, moving to agent revenue growth, it's been debt higher on a year-over-year basis than the previous quarters direct business. I guess I would have -- I guess looking at the refi volumes maybe they have less exposure to refi, so I was expected to lag, but maybe commercial playing a bigger role maybe greater exposure to smaller commercial deals. Is that why agent growth is stronger? Can you give us some color there?

No, not really. I mean we have signed some commercial agents, so it is helping us, but that's another name for us. The name for us is we continue to just look to sign high quality agents and you get a larger share of their wallet share, so we continue pursue signing high quality agents across the country or you can get the right returns from it.

Alright. Great. Thanks a lot. That's all I had.

Thank you.

The next question is from Mark Hughes of SunTrust. Please go ahead.

Yeah. Thank you. Good morning. In the Specialty Insurance, the normalization in loss ratio, is that extended into Q1, is that something you think is pretty stable now, did you get that under control?

Well, I would say, it's still a little bit elevated from where we like it to be. It’s only two components. Our property and casualty loss ratio is really a function of lot of related events. We had a lot of fires in one-time events last year which we didn’t have frankly this quarter. So we really saw an important in loss ratio in P&C simply because we had severe weather related events. Our loss ratio in home warranty is really -- it's still elevated although it's stabilized, so it's (flat) over the last year when we were doing operationally to reduce our cost per claim. So I think over time we would expect to see the loss ratio drift down, but it's very seasonal of course.

Thank you.

The next question comes from Bose George of KBW. Please go ahead.

Yeah. Good morning. So just a follow-up to the earlier comments the contributions from the acquisition, is the revenue run rate in 4Q a reasonable run rate and get to the margin by lowering expenses going forward or what happens to the revenue side of that equation?

Thanks Bose. This is Mark. I'll start with that. The $27 million is a good run rate going forward I think that most of the time when we look to buy companies, we look at the cost synergies and so I think that's where most of the value is. Although I think there are some unique cases and real reasonably there will be revenue synergies, but I think it's safe to say that the, on the revenue side, the run rate is fully reflected in the fourth quarter, although certainly we can do better on the expenses as we fully integrate them.

Okay. Great. Thanks. And then in terms of -- can you just talk about potential opportunities for more acquisitions to kind of fill up that business there anything that's logical?

Sure. This is Dennis. Pretty consistent strategy now for a number of years, we're going to continue to look to buy Title agencies in latterly the top states if they make sense to us from a return perspective, we want to continue to build direct offices through agency acquisition, so that's been a consistent strategy for us. We're going to continue to look to buy daily companies where they allow us to build our public corporate databases. Again our whole theme is to drive efficiencies with Title company and then also add or sell additional products and services for our mortgage customers. So we wrap that up again, agencies and data companies that add products and services for our mortgage customers.

Okay. Thanks. And then actually just one on capital. After the dividend in terms of uses of capital is it namely acquisitions or anything else we should think about?

Yeah, I would say that we raised the dividend 31% in August I think we feel very good about where our dividend is right now. I wouldn’t expect a better 30% increase anytime soon. So we're paying a very healthy dividend and I think we're just going to be very opportunistic with respect to acquisition opportunities that come our way that's probably the most likely use of capital.

Okay. Thank you.

Thank you.