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 First Quarter 2012 Results

Thursday, April 26, 2012

First American Financial Reports First Quarter 2012 Results07:00 EDT Thursday, April 26, 2012- Reports Earnings of 29 Cents per Diluted Share -SANTA ANA, Calif., April 26, 2012 /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 first quarter ended March 31, 2012.Current Quarter HighlightsTitle Insurance and Services segment pretax margin of 6.8 percent Highest first-quarter margin since 2006Title open orders up 31 percent compared to last year, primarily driven by refinance transactions Commercial division revenues of $81.5 million, up 21 percent compared to last year Specialty Insurance segment pretax margin of 17.3 percent Completed a new $600 million, four-year senior secured revolving credit facility on April 17, 2012Selected Financial Information($ in millions, except per share data)For the Three Months Ended March 3120122011Total revenues$ 966.8$ 931.7Income (loss) before taxes51.6(23.4)Net income (loss) $  31.3$ (15.3)Net income (loss) per diluted share0.29(0.15)Total revenues for the first quarter of 2012 were $966.8 million, an increase of 4 percent relative to the first quarter of 2011. Net income in the current quarter was $31.3 million, or 29 cents per diluted share, compared with a net loss of $15.3 million, or 15 cents per diluted share, in the first quarter of 2011. Last year's results included a $45.3 million reserve-strengthening adjustment in the company's Canadian operations, which is $27.2 million on an after-tax basis, or 26 cents per diluted share. "The year is off to a good start," said Dennis J. Gilmore, chief executive officer at First American Financial Corporation. "Our efficient and scalable cost structure coupled with improved market conditions enabled us to deliver our best first-quarter title margin since 2006. "First-quarter open orders were the strongest in three years, up 31 percent year-over-year, driven primarily by a significant increase in refinance activity and a modest but encouraging increase in resale transactions. Growth in our commercial business continued, with revenues up 21 percent compared with last year. While current market conditions and order volumes have clearly improved, we continue to maintain tight control on expenses.  "In April, we also completed a new $600 million revolving credit facility with improved pricing and terms compared to the previous facility. This new facility enhances our flexibility and strengthens our financial position."     Title Insurance and Services($ in millions, except average revenue per order)For the Three Months Ended March 3120122011Total revenues$   891.2$    861.9Income (loss) before taxes*$     60.8$     (15.7)Pretax margin 6.8%(1.8)%Direct open orders377,200287,100Direct closed orders261,300225,600Commercial**   Total revenues$     81.5$      67.3   Open orders17,90017,400   Closed orders10,4008,400   Average revenue per order$ 6,700$ 6,300* See footnote on page 7. ** Includes commercial activity from the National Commercial Services division only.Total revenues for the Title Insurance and Services segment were $891.2 million, a 3 percent increase from the same quarter of 2011. Direct premiums and escrow fees were up 16 percent from the first quarter of 2011, directly comparable with the 16 percent increase in the number of direct title orders closed in the quarter. Average revenue per direct title order was $1,315, compared with $1,310 in the first quarter of 2011. Agent premiums were lower by 6 percent in the current quarter, which is comparable with the 4 percent decline in direct premiums experienced in the fourth quarter, reflecting the normal reporting lag of approximately one quarter. Information and other revenues were $155.3 million this quarter, up 3 percent as compared to the same quarter of last year, primarily attributable to higher demand for the company's title plant information and increased international service revenues, offset in part by lower sales of default information products. Total investment income was down 5 percent in the first quarter, primarily reflecting higher net realized investment losses. Personnel costs were $277.6 million in the first quarter, an increase of $18.5 million, or 7 percent, compared with the first quarter of 2011.  This increase was primarily due to higher incentive-based compensation, increased healthcare-related expenses, and one additional payroll day in the current quarter. Other operating expenses were $171.8 million in the first quarter, down $3.8 million, or 2 percent, compared with the first quarter of 2011. This decrease was primarily due to lower office-related expenses resulting from the company's consolidation and closure of certain title offices. Further contributing to the decrease in other operating expenses was a decline in professional services costs. These decreases were partially offset by higher production-related expenses due to increased order activity. The provision for policy losses and other claims was $52.2 million in the first quarter, or 7.2 percent of title premiums and escrow fees, down $44.2 million compared with the same quarter of the prior year. Last year's results included a $45.3 million reserve-strengthening adjustment in the company's Canadian operations. The current quarter rate of 7.2 percent reflects an ultimate loss rate of 6.2 percent for the current policy year and a net increase in the loss reserve estimates for prior policy years, primarily 2007 and 2008. Pretax income for the Title Insurance and Services segment was $60.8 million in the first quarter, compared with a $15.7 million pretax loss in the first quarter of 2011. Pretax margin was 6.8 percent in the current quarter.  Specialty Insurance($ in millions)For the Three Months Ended March 3120122011Total revenues$ 74.2$ 68.8Income before taxes*$ 12.8$ 12.4Pretax margin 17.3%18.0%* See footnote on page 7. Total revenues for the Specialty Insurance segment were $74.2 million in the first quarter of 2012, an increase of 8 percent compared with the first quarter of 2011. The overall loss ratio in the Specialty Insurance segment was 49 percent in the current quarter, down from 51 percent in the prior year. Pretax margin was 17.3 percent, down from 18.0 percent in the first quarter of 2011. Teleconference/WebcastFirst American's first quarter 2012 results will be discussed in more detail on Thursday, April 26, 2012, at 11 a.m. ET, via teleconference. The toll-free dial-in number is (877) 918-5752. Callers from outside the United States may dial (517) 319-9305. 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 May 3, 2012, by dialing (203) 369-0663. 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 $3.8 billion in 2011, 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 12 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 effects of the HARP 2.0 program, closed order projections, corporate net expense projections, and expense management 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; 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; regulation of title insurance rates; reform of government-sponsored mortgage enterprises; limitations on access to public records and other data; product migration; changes resulting from increases in the size of the company's customers; changes in measures of the strength of the company's title insurance underwriters, including ratings and statutory surpluses; losses in the company's investment portfolio; expenses of and funding obligations to the pension plan; material variance between actual and expected claims experience; defalcations, increased claims or other costs and expenses attributable to the company's use of title agents; systems interruptions and intrusions, wire transfer errors or unauthorized data disclosures; inability to realize the benefits of the company's offshore strategy; inability of the company's subsidiaries to pay dividends or repay funds; and other factors described in the company's annual report on Form 10-K for the year ended December 31, 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. Use of Non-GAAP Financial Measures This news release and related management commentary contain certain financial measures that are not presented in accordance with generally accepted accounting principles (GAAP), including a personnel and other operating expense ratio. 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 of 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 this news release, these non-GAAP financial measures have been 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. Media Contact: Investor Contact:Carrie Navarifar Craig BarberioCorporate Communications Investor 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 EndedMarch 3120122011Total revenues$ 966,763$ 931,700Income (loss) before income taxes$  51,550$ (23,449)Income tax expense (benefit)20,441(8,208)Net income (loss)31,109(15,241)Less: Net (loss) income attributable to noncontrolling interests(184)94Net income (loss) attributable to the Company$  31,293$ (15,335)Net income (loss) per share attributable to stockholders:     Basic$      0.30$     (0.15)     Diluted$      0.29$     (0.15)Cash dividends per share$      0.08$      0.06Weighted average common shares outstanding:     Basic105,621104,660     Diluted107,480104,660Selected Title InformationTitle orders opened377,200287,100Title orders closed261,300225,600Paid title claims$  80,455$  81,357First American Financial CorporationSelected Balance Sheet Information(in thousands)(unaudited)March 31, 2012December 31, 2011Cash and cash equivalents$      672,529$     418,299Investment portfolio2,669,6822,642,917Goodwill and other intangible assets890,223878,414Total assets5,653,1935,370,337Reserve for claim losses992,7191,014,676Notes payable276,684299,975Total stockholders' equity2,087,4732,028,600First American Financial CorporationSegment Information(in thousands, unaudited)For the Three Months EndedTitleSpecialtyCorporateMarch 31, 2012Consolidated Insurance Insurance(incl. Elims.)RevenuesDirect premiums and escrow fees$    413,786$343,639$  70,147$              -Agent premiums376,986376,986--Information and other155,760155,289475(4)Investment income22,37717,3212,4652,591Net realized investment (losses) gains*(2,146)(2,014)1,111(1,243)966,763891,22174,1981,344ExpensesPersonnel costs305,279277,57713,66314,039Premiums retained by agents302,164302,164--Other operating expenses189,150171,75211,0426,356Provision for policy losses and other claims86,67852,17934,499-Depreciation and amortization18,05916,3331,055671Premium taxes10,8489,7331,115-Interest3,035661-2,374915,213830,39961,37423,440Income (loss) before income taxes**$     51,550$  60,822$  12,824$    (22,096)For the Three Months EndedTitleSpecialtyCorporateMarch 31, 2011Consolidated Insurance Insurance(incl. Elims.)RevenuesDirect premiums and escrow fees$    361,094$295,431$  65,663$              -Agent premiums399,921399,921--Information and other150,758150,4273292Investment income20,77117,5682,508695Net realized investment (losses) gains* (844)(1,423)331248931,700861,92468,831945ExpensesPersonnel costs283,302259,06711,65112,584Premiums retained by agents319,987319,987--Other operating expenses190,390175,5139,6105,267Provision for policy losses and other claims129,51296,37633,136-Depreciation and amortization19,09917,1711,016912Premium taxes9,0438,0391,004-Interest3,8161,467-2,349955,149877,62056,41721,112(Loss) income before income taxes**$    (23,449)$ (15,696)$  12,414$    (20,167)*   Includes other-than-temporary impairment (OTTI) losses recorded in earnings.** During the current quarter, changes were made to the allocation of certain expenses between business segments and the corporate division, primarily related to benefit plans, shared services, and interest expense. Prior period financials were reclassified to conform to the current presentation. For the first quarter of 2011, income before income taxes increased by $2.9 million in the title segment and $0.2 million in the specialty segment with an offsetting decrease of $3.1 million in corporate.First American Financial CorporationExpense Ratio ReconciliationTitle Insurance and Services Segment($ in thousands, unaudited)For the Three Months EndedMarch 3120122011Total revenues$ 891,221$ 861,924-Net realized investment (losses)(2,014)(1,423)-Investment income17,32117,568-Premiums retained by agents 302,164319,987Net operating revenues573,750525,792Personnel and other operating expenses$ 449,329$ 434,580Ratio (% net operating revenues)78.3%82.7%Ratio (% total revenues)50.4%50.4%SOURCE First American Financial Corporation