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 Reports Third Quarter 2011 Results

Thursday, October 27, 2011

First American Financial Reports Third Quarter 2011 Results07:00 EDT Thursday, October 27, 2011?Reports Earnings of 20 Cents per Diluted Share?SANTA ANA, Calif., Oct. 27, 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 third quarter ended Sept. 30, 2011.Current Quarter HighlightsTitle Insurance and Services segment pretax income of $48.9 million, which includes:$13.0 million reserve charge in connection with Bank of America's pending lawsuit$14.7 million increase in claim loss reserves for prior policy years, primarily 2007Commercial division revenues of $89.0 million, up 22 percent compared to last yearInternational division revenues of $97.4 million, up 24 percent compared to last yearSpecialty Insurance segment pretax income of $6.7 million for a 9.0 percent marginCash flow from operations of $53.2 millionDebt-to-total-capital ratio of 12.3 percent as of Sept. 30, 2011 Selected Financial Information ($ in millions, except per share data) For the Three Months Ended September 3020112010Total revenues$ 965.0$ 1,003.5Income before taxes38.456.0Net income $   21.0$      33.1Net income per diluted share0.200.31Total revenues for the third quarter of 2011 were $965.0 million, a decline of 4 percent relative to the third quarter of 2010. Net income in the current quarter was $21.0 million, or 20 cents per diluted share, compared with net income of $33.1 million, or 31 cents per diluted share, in the third quarter of 2010. The current quarter results include net realized investment losses of $3.3 million, or 2 cents per diluted share, compared with $0.4 million, or 0.2 cents per diluted share in the third quarter of 2010. The current quarter results also include total reserve additions of $27.7 million, or 15 cents per diluted share, compared with $10.3 million, or 6 cents per diluted share in the third quarter of 2010."We are encouraged by the continued strength in our commercial business, a strong rebound in our International division, and a significant increase in refinance orders opened during the third quarter," said Dennis J. Gilmore, chief executive officer at First American Financial Corporation.  "The quarter also benefited from the $40 million annualized expense reduction program that we implemented last quarter. "As lower mortgage interest rates took hold in the quarter, we experienced a significant increase in open orders in August that has largely continued through September and into October.  This improved order flow, coupled with continued momentum in our commercial business, provides us with a strong pipeline going into the fourth quarter."  Title Insurance and Services($ in millions, except average revenue per order)For the Three Months Ended September 3020112010Total revenues$   897.8$    924.7Income before taxes$     48.9$      60.0Pretax margin 5.4%6.5%Direct open orders344,500418,900Direct closed orders226,600276,700Commercial*   Total revenues$     89.0$      72.9   Open orders17,30016,500   Closed orders9,4007,800   Average revenue per order$   7,600$    7,700* Includes commercial activity from the National Commercial Services division onlyTotal revenues for the Title Insurance and Services segment were $897.8 million, a 3 percent decline from the same quarter of 2010. The lower total revenues were driven by a decline in both direct and agent title premiums, partly offset by higher information and other revenues. Direct premiums and escrow fees were down 1 percent, compared to the third quarter of 2010, due to an 18 percent decline in the number of direct title orders closed in the quarter that was largely offset by higher average revenue per order. Average revenue per direct title order was $1,561, an increase of 21 percent, compared with the third quarter of 2010, primarily due to a change in the mix toward higher-premium resale and commercial transactions. Agent premiums were lower by 8 percent in the current quarter, reflecting the normal reporting lag of approximately one quarter. Information and other revenues were $160.2 million this quarter, up 5 percent as compared to the same quarter of last year, driven by our Canadian operations. Total investment income was up 2 percent in the third quarter, reflecting lower net realized investment losses compared to last year. Personnel costs were $279.0 million in the third quarter, a decrease of $6.1 million, or 2 percent, compared with the third quarter of 2010. This decline was primarily due to a reduction in U.S. headcount and reduced costs related to employee benefit plans.  Other operating expenses were $174.0 million in the third quarter, down $8.7 million, or 5 percent, compared with the third quarter of 2010. This decrease was primarily due to lower office-related costs and a reduction in consulting expenses that were partially offset by an increase in production-related expenses in the company's commercial, default and international businesses. The provision for policy losses and other claims was $69.5 million in the third quarter, or 9.7 percent of title premiums and escrow fees, up $20.0 million compared with the same quarter of the prior year. The current quarter rate of 9.7 percent reflects an ultimate loss rate of 5.8 percent for the current policy year and includes $14.7 million in unfavorable development for prior policy years, primarily 2007, and a $13.0 million reserve in connection with Bank of America's pending lawsuit against the Company. While the Company estimates its financial exposure from this lawsuit to be between $13 million and $42 million, its best estimate of its financial exposure is $13 million, which is also the amount for which the Company has offered to settle the case. These amounts do not reflect any potential recovery from third parties.  Pretax income for the Title Insurance and Services segment was $48.9 million in the third quarter, compared with $60.0 million in the third quarter of 2010, or a decrease of 19 percent. Pretax margin was 5.4 percent in the current quarter, compared with 6.5 percent in the third quarter of 2010.Specialty Insurance($ in millions)For the Three Months Ended September 3020112010Total revenues$74.3$74.6Income before taxes$  6.7$12.2Pretax margin 9.0%16.4%Total revenues for the Specialty Insurance segment were $74.3 million in the third quarter of 2011, essentially flat compared with the third quarter of 2010. Pretax margin was 9.0 percent, down from 16.4 percent in the third quarter of 2010. The overall loss ratio in the Specialty Insurance segment was 60 percent in the current quarter, compared with 53 percent in the prior year.  Policy losses were higher in both the home warranty and property and casualty business lines during the quarter.Teleconference/WebcastFirst American's third quarter results will be discussed in more detail on Thursday, Oct. 27, 2011, at 11 a.m. ET, via teleconference. The toll-free dial-in number is (888) 994-3817. Callers from outside the United States may dial (773) 756-4703. 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 Nov. 4, 2011, by dialing (203) 369-1399. 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 fourth quarter pipeline, the estimated financial exposure from the Bank of America litigation, the outlook for our commercial business, CoreLogic's review of strategic alternatives, future market conditions, and future organic growth and strategic investments, 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; volatility in the capital markets; unfavorable economic conditions; impairments in the company's goodwill or other intangible assets; changes in measures of the strength of the company's title insurance underwriters, including ratings and statutory surpluses; failures at financial institutions where the company deposits funds; 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; reform of government-sponsored mortgage enterprises; limitations on access to public records and other data; regulation of title insurance rates; inability of the company's subsidiaries to pay dividends or repay funds; 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; material variance between actual and expected claims experience; systems interruptions and intrusions, wire transfer errors or unauthorized data disclosures; inability to realize the benefits of the company's offshore strategy; product migration; increases in the size of the company's customers; losses in the company's investment portfolio; and other factors described in the company's quarterly report on Form 10-Q for the quarter ended June 30, 2011, 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:Investor Contact:Carrie NavarifarCraig BarberioCorporate CommunicationsInvestor RelationsFirst American Financial Corporation First American Financial Corporation(714) 250-3298(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 Nine Months EndedSeptember 30September 302011201020112010Total revenues$                   964,965$  1,003,523$  2,824,008$  2,881,872Income before income taxes$                     38,411$       55,988$       64,177$     137,523Income tax expense17,11622,64525,97656,311Net income21,29533,34338,20181,212Less: Net income attributable to noncontrolling interests252210152477Net income attributable to the Company$                     21,043$       33,133$       38,049$       80,735Net income per share attributable to stockholders:     Basic$                         0.20$           0.32$           0.36$           0.78     Diluted$                         0.20$           0.31$           0.36$           0.76Cash dividends per share$                         0.06$           0.06$           0.18$           0.12Weighted average common shares outstanding:     Basic105,375104,173105,104104,064     Diluted107,005106,112106,837106,010Selected Title InformationTitle orders opened344,500418,900934,0001,121,400Title orders closed226,600276,700667,800783,000Paid title claims$                     74,887$       84,881$     236,501$     235,547First American Financial CorporationSelected Balance Sheet Information(in thousands)(unaudited)September 30,2011December 31,2010Cash and cash equivalents$  630,968$  728,746Investment portfolio2,567,9962,683,038Goodwill and other intangible assets874,051882,081Total assets5,556,2595,821,826Reserve for claim losses1,058,9031,108,238Notes payable278,924293,817Total stockholders' equity1,976,2461,980,017First American Financial CorporationSegment Information(in thousands)(unaudited)For the Three Months EndedTitleSpecialtyCorporateSeptember 30, 2011Consolidated Insurance Insurance(incl. Elims.)RevenuesDirect premiums and escrow fees$    425,266$ 353,813$  71,453$              -Agent premiums366,028366,028--Information and other160,236160,234-2Investment income16,69519,6332,635(5,573)Net realized investment (losses) gains*(3,260)(1,878)195(1,577)964,965897,83074,283(7,148)ExpensesPersonnel costs293,871279,04713,5781,246Premiums retained by agents293,583293,583--Other operating expenses189,277174,0288,9766,273Provision for policy losses and other claims112,17769,53842,639-Depreciation and amortization19,01817,0531,046919Premium taxes15,40314,0491,354-Interest3,2251,63551,585926,554848,93367,59810,023Income (loss) before income taxes$      38,411$   48,897$    6,685$   (17,171)For the Three Months EndedTitleSpecialtyCorporateSeptember 30, 2010Consolidated Insurance Insurance(incl. Elims.)RevenuesDirect premiums and escrow fees$    427,334$ 357,908$  69,426$              -Agent premiums396,094396,094--Information and other153,222153,222--Investment income27,30919,9622,9744,373Net realized investment (losses) gains*(436)(2,517)2,174(93)1,003,523924,66974,5744,280ExpensesPersonnel costs307,713285,11912,7699,825Premiums retained by agents319,840319,840--Other operating expenses200,717182,73610,4367,545Provision for policy losses and other claims86,45049,54636,904-Depreciation and amortization18,99116,9901,057944Premium taxes9,7678,6091,158-Interest4,0571,80542,248947,535864,64562,32820,562Income (loss) before income taxes$      55,988$   60,024$  12,246$   (16,282)*Includes other-than-temporary impairment (OTTI) losses recorded in earnings.First American Financial CorporationSegment Information(in thousands)(unaudited)For the Nine Months EndedTitleSpecialtyCorporateSeptember 30, 2011ConsolidatedInsuranceInsurance(incl. Elims.)RevenuesDirect premiums and escrow fees$   1,190,587$     984,668$   205,919$             -Agent premiums1,114,3901,114,390--Information and other466,455466,450-5Investment income59,56056,2147,710(4,364)Net realized investment (losses) gains*(6,984)(5,133)1,131(2,982)2,824,0082,616,589214,760(7,341)ExpensesPersonnel costs874,502817,35537,96819,179Premiums retained by agents893,382893,382--Other operating expenses572,560526,01128,19318,356Provision for policy losses and other claims318,926206,180112,746-Depreciation and amortization56,98451,1723,1392,673Premium taxes34,35930,7963,563-Interest9,1184,482144,6222,759,8312,529,378185,62344,830Income (loss) before income taxes$       64,177$      87,211$     29,137$    (52,171)For the Nine Months EndedTitleSpecialtyCorporateSeptember 30, 2010ConsolidatedInsuranceInsurance(incl. Elims.)RevenuesDirect premiums and escrow fees$   1,221,550$  1,018,184$   203,366$             -Agent premiums1,132,7261,132,726--Information and other451,340451,340--Investment income71,28057,9259,1554,200Net realized investment gains (losses)*4,9763,7361,760(520)2,881,8722,663,911214,2813,680ExpensesPersonnel costs891,671831,29640,22220,153Premiums retained by agents913,706913,706--Other operating expenses600,663548,01131,98120,671Provision for policy losses and other claims240,436138,196102,240-Depreciation and amortization59,36453,1564,2032,005Premium taxes28,28925,0563,233-Interest10,2206,308143,8982,744,3492,515,729181,89346,727Income (loss) before income taxes$     137,523$     148,182$     32,388$    (43,047)*Includes other-than-temporary impairment (OTTI) losses recorded in earnings.SOURCE First American Financial Corporation