The Globe and Mail

Go to the Globe and Mail homepage

Jump to main navigationJump to main content

Press release from PR Newswire

First American Financial Corporation Reports Results for the Fourth Quarter and Full Year of 2010

Thursday, February 24, 2011

First American Financial Corporation Reports Results for the Fourth Quarter and Full Year of 201007:00 EST Thursday, February 24, 2011?Reports Earnings per Diluted Share of 44 Cents for the Fourth Quarter?SANTA ANA, Calif., Feb. 24, 2011 /PRNewswire/ -- First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance and settlement services for real estate transactions, today announced financial results for the fourth quarter and year ended Dec. 31, 2010.Selected Financial Information($ in millions, except share data)For the Three Months Ended December 31         2010         2009Total revenues$1,024.7$1,032.8Income before taxes74.661.1Net income$    47.1$     50.1Earnings per diluted share0.440.48Total revenues for the fourth quarter of 2010 were $1.0 billion, a decline of 1 percent relative to the fourth quarter of 2009. Income before taxes was $74.6 million, an increase of 22 percent relative to the fourth quarter of 2009. Net income was $47.1 million, or 44 cents per diluted share, compared with $50.1 million, or 48 cents per diluted share, in the fourth quarter of 2009. Net income and earnings per share for the fourth quarter of 2009 benefitted from a low effective income tax rate, which reflected the release of certain tax liabilities associated with uncertain tax positions. The current quarter results include net realized investment losses of $2.8 million, or 2 cents per diluted share, compared with net realized investment losses of $8.3 million, or 5 cents per diluted share, in the fourth quarter of 2009.Total revenues for the full year of 2010 were $3.9 billion, a 3 percent decline relative to the prior year. Net income was $127.8 million, or $1.20 per diluted share, compared with $122.4 million, or $1.18 per diluted share, in 2009. The results for the full year of 2010 include $2.2 million of net realized investment gains, or 1 cent per diluted share, compared with net realized investment losses of $25.2 million, or 15 cents per diluted share, in 2009.Current Quarter HighlightsTitle Insurance and Services segment pretax margin of 8.6 percentTotal commercial revenues of $97.7 million, up 49 percent relative to the prior yearSpecialty Insurance segment pretax margin of 14.3 percent Cash flow from operations of $130.1 million "The company achieved strong results in 2010 given the continued weakness in the mortgage and real estate markets and the general economy," said Dennis J. Gilmore, chief executive officer of First American Financial Corporation. "Earnings improved in both our Title Insurance and Services and Specialty Insurance segments compared with last year. During the year, we also completed a seamless transition to a standalone public company following the June 1 spin-off transaction."During the fourth quarter, the Title Insurance and Services segment results were the strongest since the fourth quarter of 2006. We achieved a pretax margin of 8.6 percent primarily driven by improved operational efficiency, ongoing expense management, strong commercial activity and a robust refinance market. Commercial title, which continues to improve across most markets, achieved its strongest quarter since the peak year of 2007."Our Specialty Insurance segment also had good fourth quarter results, with a pretax margin of 14.3 percent. The home warranty business continued its strong performance due to improved cost and operations management. Our property and casualty business maintained good performance in the quarter, despite incurring higher claim losses associated with a severe hailstorm in Arizona. "While the 2011 outlook for the mortgage and real estate markets remains uncertain, we are positioning the company for a significantly lower mortgage origination market. For 2011, we expect to maintain a conservative balance sheet that reflects challenging market conditions, while pursuing organic growth and capitalizing on strategic investment opportunities in our core business."Title Insurance and Services($ in millions, except average revenue per order)For the Three Months Ended December 3120102009Total revenues$    949.9$    961.0Income before taxes$      81.3$      58.4Pretax margin 8.6%6.1%Direct open orders345,000365,500Direct closed orders292,200286,700Commercial*   Total revenue$      97.7$      65.5   Open orders16,90014,300   Closed orders9,8008,100   Average revenue per order$    8,100$    6,000* Includes commercial activity from the National Commercial Services division onlyDuring the fourth quarter of 2010, total revenues for the Title Insurance and Services segment were $949.9 million, a 1 percent decline from the same quarter of 2009. The lower total revenues were driven by an 11 percent decline in agent premiums, largely offset by higher direct premiums and escrow fees and information and other revenues. The relative weakness in agent revenues is primarily due to the normal reporting lag of approximately one quarter. As a result, agent revenues in the fourth quarter reflect weaker third quarter origination activity in 2010, as compared with 2009. Direct revenue grew by 10 percent, driven by a 2 percent increase in the number of direct title orders closed and higher average revenue per order. Average revenue per direct title order was $1,382, an increase of 8 percent, compared with the fourth quarter of 2009, due to the increase in the mix of higher premium commercial transactions relative to lower premium refinance transactions. Information and other revenues were up 3 percent, compared with the same quarter last year, reflecting increased demand for title plant information and other non-insurance products in the company's commercial and international divisions, offset by reduced activity in the company's default business. Personnel costs and other operating expenses were $487.3 million in the fourth quarter, up $14.7 million, or 3 percent, compared with the fourth quarter of 2009. These expenses were up due to higher costs associated with the company's pension and other retirement plans, and increased production and other costs as a result of higher revenues in the commercial and international divisions.The loss provision in the current quarter was 5.4 percent of title insurance premiums and escrow fees, compared with 5.9 percent in the fourth quarter of 2009. The current quarter loss provision rate reflects an expected ultimate loss ratio of 4.9 percent for policy year 2010 and a net increase in the loss reserve estimates for prior policy years, primarily 2007.Pretax income for the Title Insurance and Services segment was $81.3 million in the fourth quarter of 2010, compared with $58.4 million in the fourth quarter of 2009, or an increase of 39 percent. Pretax margin was 8.6 percent in the fourth quarter, compared with 6.1 percent in the fourth quarter of 2009. The current quarter includes net realized investment losses that reduced the pretax margin by 20 basis points, while the fourth quarter of 2009 includes net realized investment losses that reduced the pretax margin by 90 basis points.Specialty Insurance($ in millions)For the Three Months Ended December 3120102009Revenues$    72.1$    71.8Income before taxes$    10.3$    12.6Pretax margin 14.3%17.5%Total revenues for the Specialty Insurance segment were $72.1 million in the fourth quarter of 2010, essentially flat, compared with the fourth quarter of 2009. Higher revenues in the home warranty business were offset by lower revenues in the property and casualty business. Pretax margin was 14.3 percent, down from 17.5 percent in the fourth quarter of 2009. Pretax margin was lower compared with the prior year due to higher property and casualty claim losses as the result of a severe hailstorm in Phoenix, partly offset by a higher pretax margin in the home warranty business.Teleconference/WebcastFirst American's fourth quarter results will be discussed in more detail on Thursday, Feb. 24, 2011, at 11 a.m. ET, via teleconference. The toll-free dial-in number is (888) 989-4494. Callers from outside the United States may dial (210) 234-0047. The pass code for the event is FIRST AMERICAN. The live audio webcast of the call will be available on First American's website at www.firstam.com/investor. An audio replay of the conference call will be available through March 3, 2011, by dialing (203) 369-0604. An audio archive of the call will also be available on First American's investor website.About First AmericanFirst American Financial Corporation (NYSE: FAF) is a leading provider of title insurance and settlement services to the real estate and mortgage industries, that traces its heritage back to 1889. First American and its affiliated companies also provide title plant management services; title and other real property records and images; valuation products and services; home warranty products; property and casualty insurance; and banking, trust and investment advisory services. With revenues of $3.9 billion in 2010, the company offers its products and services directly and through its agents and partners in all 50 states and abroad. More information about the company can be found at www.firstam.com.Website Disclosure First American posts information of interest to investors at www.firstam.com/investor. This includes opened and closed title insurance order counts for its direct title insurance operations, which are posted approximately 15 days after the end of each month.Forward-Looking StatementsCertain statements made in this press release and the related management commentary and responses to investor questions, including but not limited to those related to the uncertain outlook for the real estate and mortgage markets; the company's positioning for a significantly lower mortgage origination market; maintenance of a conservative balance sheet and pursuit of organic growth and strategic investment opportunities; and continued operational efficiencies, are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These forward-looking statements may contain the words "believe," "anticipate," "expect," "plan," "predict," "estimate," "project," "will be," "will continue," "will likely result," or other similar words and phrases. Risks and uncertainties exist that may cause 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 include: interest rate fluctuations; changes in the performance of the real estate markets; limitations on access to public records and other data; general volatility in the capital markets; changes in applicable government regulations; heightened scrutiny by legislators and regulators of the company's Title Insurance and Services segment and certain other of the company's businesses; increases in the size of the company's customers; unfavorable economic conditions; impairments in the company's goodwill or other intangible assets; losses in the company's investment portfolio; expenses of and funding obligations to the pension plan; weakness in the commercial real estate market and increases in the amount or severity of commercial real estate transaction claims; regulation of title insurance rates; and other factors described in the company's information statement attached as Exhibit 99.1 to the company's current report on Form 8-K dated May 26, 2010, as updated in part I, Item 1A of the company's quarterly reports on form 10-Q for the quarters ended June 30, 2010, and Sept. 30, 2010, each as filed with the Securities and Exchange Commission. The forward-looking statements speak only as of the date they are made. 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. Media Contact:Carrie NavarifarCorporate CommunicationsFirst American Financial Corporation(714) 250-3298Investor Contact:Craig BarberioInvestor RelationsFirst American Financial Corporation(714) 250-5214 (Additional Financial Data Follows)First American Financial CorporationSummary of Consolidated Financial Results and Selected Information(in thousands, except per share amounts and title orders)(unaudited)For the Three Months EndedFor the Twelve Months EndedDecember 31December 312010200920102009Total revenues$     1,024,740$     1,032,793$     3,906,612$     4,046,834Income before income taxes$          74,583$          61,144$        212,106$        204,345Income taxes26,8398,54183,15070,068Net income47,74452,603128,956134,277Less: Net income attributable to noncontrolling interests6502,5331,12711,888Net income attributable to the Company$          47,094$          50,070$        127,829$        122,389Net income per share attributable to stockholders:     Basic$              0.45$              0.48$              1.23$              1.18     Diluted$              0.44$              0.48$              1.20$              1.18Cash dividends per share$              0.06$                  -$              0.18$                  -Weighted average common shares outstanding:     Basic104,330104,006104,134104,006     Diluted106,413104,006106,177104,006Selected Title InformationTitle orders opened345,000365,5001,458,3001,769,000Title orders closed292,200286,7001,066,7001,305,000Paid title claims$          78,499$          79,219$        314,046$        306,536First American Financial CorporationSelected Balance Sheet Information(in thousands)(unaudited)December 31, 2010December 31, 2009Cash and cash equivalents$        728,746$        631,297Investment portfolio2,647,1512,428,344Goodwill and other intangible assets882,081879,878Total assets5,821,8265,530,281Reserve for claim losses1,108,2381,227,757Notes payable293,817119,313Allocated portion of The First American Corporation ("TFAC") debt-140,000Total stockholders' equity/TFAC's invested equity1,980,0172,019,800First American Financial CorporationSegment Information(in thousands)(unaudited)For the Three Months EndedTitleSpecialtyCorporateDecember 31, 2010ConsolidatedInsuranceInsurance(incl. Elims.)RevenuesDirect premiums and escrow fees$       473,100$       403,798$         69,302$                   -Agent premiums384,979384,979--Information and other146,469146,459-10Investment income22,98217,5922,7212,669Net realized investment (losses) gains*(2,790)(2,954)67971,024,740949,87472,0902,776ExpensesPersonnel costs323,660300,29912,07611,285Premiums retained by agents308,567308,567--Other operating expenses202,475186,9699,8605,646Provision for policy losses and other claims80,43842,62537,813-Depreciation and amortization20,84718,9821,135730Premium taxes9,4918,588903-Interest4,6792,49442,181950,157868,52461,79119,842Income (loss) before income taxes$         74,583$         81,350$         10,299$        (17,066)For the Three Months EndedTitleSpecialtyCorporateDecember 31, 2009ConsolidatedInsuranceInsurance(incl. Elims.)RevenuesDirect premiums and escrow fees$       434,229$       367,323$         66,906$                   -Agent premiums433,140433,140--Information and other142,605142,605--Investment income31,08627,8753,218(7)Net realized investment (losses) gains*(8,267)(9,949)1,709(27)1,032,793960,99471,833(34)ExpensesPersonnel costs305,272289,10512,6423,525Premiums retained by agents352,279352,279--Other operating expenses198,830183,50110,0755,254Provision for policy losses and other claims80,97046,95934,011-Depreciation and amortization21,81819,8001,511507Premium taxes9,7198,732987-Interest2,7612,1727582971,649902,54859,2339,868Income (loss) before income taxes$         61,144$         58,446$         12,600$          (9,902)*Includes other-than-temporary impairment (OTTI) losses recorded in earnings.First American Financial CorporationSegment Information(in thousands)(unaudited)For the Twelve Months EndedTitleSpecialtyCorporateDecember 31, 2010ConsolidatedInsuranceInsurance(incl. Elims.)RevenuesDirect premiums and escrow fees$    1,694,651$    1,422,619$       272,032$                   -Agent premiums1,517,7041,517,704--Information and other597,809597,799-10Investment income94,26275,51711,8766,869Net realized investment gains (losses)*2,1867821,827(423)3,906,6123,614,421285,7356,456ExpensesPersonnel costs1,216,0501,133,13351,47731,440Premiums retained by agents1,222,2741,222,274--Other operating expenses803,718735,42441,98026,314Provision for policy losses and other claims320,874180,821140,053-Depreciation and amortization78,91170,8525,3242,735Premium taxes37,78033,6454,135-Interest14,8998,803186,0783,694,5063,384,952242,98766,567Income (loss) before income taxes$       212,106$       229,469$         42,748$        (60,111)For the Twelve Months EndedTitleSpecialtyCorporateDecember 31, 2009ConsolidatedInsuranceInsurance(incl. Elims.)RevenuesDirect premiums and escrow fees$    1,780,895$    1,511,264$       269,631$                   -Agent premiums1,524,1201,524,120--Information and other646,791646,791--Investment income120,249104,55113,4312,267Net realized investment losses*(25,221)(18,534)(5,523)(1,164)4,046,8343,768,192277,5391,103ExpensesPersonnel costs1,218,1921,147,53954,90715,746Premiums retained by agents1,229,2291,229,229--Other operating expenses909,576849,74041,60118,235Provision for policy losses and other claims346,714205,819140,895-Depreciation and amortization82,47574,3214,2753,879Premium taxes36,48432,1384,346-Interest19,81914,336255,4583,842,4893,553,122246,04943,318Income (loss) before income taxes$       204,345$       215,070$         31,490$        (42,215)*Includes other-than-temporary impairment (OTTI) losses recorded in earnings.SOURCE First American Financial CorporationFor further information: Carrie Navarifar, Corporate Communications, First American Financial Corporation, +1-714-250-3298, Or Investors, Craig Barberio, Investor Relations, +1-714-250-5214, Both Of First American Financial Corporation