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 Second Quarter 2012 Results

Thursday, July 26, 2012

First American Financial Reports Second Quarter 2012 Results07:00 EDT Thursday, July 26, 2012? Reports Earnings of 68 Cents per Diluted Share ?SANTA ANA, Calif., July 26, 2012 /PRNewswire/ -- First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance and settlement services to the real estate and mortgage industries, today announced financial results for the second quarter ended June 30, 2012.Current Quarter HighlightsTotal revenues up 18 percent compared to last year Title Insurance and Services segment pretax margin of 11.7 percent Highest pretax margin since 2005 Title open orders up 36 percent compared to last year Commercial division revenues of $98.2 million, up 16 percent compared to last year Cash flow from operations of $111.6 millionSelected Financial Information($ in millions, except per share data)For the Three Months Ended June 3020122011Total revenues$ 1,089.8$ 927.3Income before taxes112.349.2Net income $      73.0$   32.3Net income per diluted share0.680.30Total revenues for the second quarter of 2012 were $1.1 billion, an increase of 18 percent relative to the second quarter of 2011. Net income in the current quarter was $73.0 million, or 68 cents per diluted share, compared with net income of $32.3 million, or 30 cents per diluted share, in the second quarter of 2011. The current quarter results include net realized investment gains of $5.7 million, or 3 cents per diluted share, compared with net realized investment losses of $2.9 million, or 2 cents per diluted share, in the second quarter of 2011. "In the second quarter we achieved our best results since 2005, with a title margin of 11.7 percent," said Dennis J. Gilmore, chief executive officer at First American Financial Corporation. "The cost-efficient and scalable operations we built over the last several years enabled us to demonstrate significant operating leverage in the quarter. "Second-quarter open orders were up 36 percent year-over-year, primarily driven by strong refinance activity. We also saw an increase in resale and commercial transactions in the quarter. Given first-half results and a strong order pipeline, we are on track to deliver on our goal of an 8 to 10 percent title margin for the full year 2012."  Title Insurance and Services($ in millions, except average revenue per order)For the Three Months Ended June 3020122011Total revenues$   1,012.0$    857.8Income before taxes*$      118.4$      60.8Pretax margin 11.7%7.1%Direct open orders411,200302,400Direct closed orders289,300215,600Commercial**   Total revenues$        98.2$      84.5   Open orders19,10018,200   Closed orders  12,1009,500       Average revenue per order$ 7,100$ 7,400* See footnote (2) on page 7. **Includes commercial activity from the National Commercial Services division only.Total revenues for the Title Insurance and Services segment were $1.0 billion, an 18 percent increase from the same quarter of 2011. Direct premiums and escrow fees were up 27 percent from the second quarter of 2011, driven by a 34 percent increase in the number of direct title orders closed in the quarter, partially offset by a 5 percent decline in the average revenue per direct title order to $1,466. Agent premiums were up 15 percent in the current quarter, which is consistent with the 16 percent increase in direct premiums experienced in the previous quarter, reflecting the normal reporting lag of approximately one quarter. Information and other revenues were $167.4 million this quarter, up 6 percent as compared to the same quarter of last year, primarily attributable to higher demand for the company's data and information products. Total investment income was up 10 percent, reflecting higher net realized investment gains in the current quarter that were partly offset by lower yield on the investment portfolio.Personnel costs were $299.3 million in the second quarter, an increase of $29.6 million, or 11 percent, compared with the second quarter of 2011.  This increase was primarily due to higher incentive-based compensation driven by improved revenues and profitability, partially offset by reduced severance expense related to the expense reduction program the company implemented last year. Other operating expenses were $189.8 million in the second quarter, up $8.0 million, or 4 percent, compared with the second quarter of 2011. The increase in other operating expenses was primarily due to higher production-related expenses and temporary labor driven by the increase in order volumes in the current quarter, largely offset by a decline in legal expenses.The provision for policy losses and other claims was $54.8 million in the second quarter, or 6.6 percent of title premiums and escrow fees, up $14.6 million compared with the same quarter of the prior year. The current quarter rate of 6.6 percent reflects an ultimate loss rate of 5.9 percent for the current policy year and a net increase in the loss reserve estimates for prior policy years. Pretax income for the Title Insurance and Services segment was $118.4 million in the second quarter, compared with $60.8 million in the second quarter of 2011. Pretax margin was 11.7 percent in the current quarter, compared with 7.1 percent last year.  Specialty Insurance($ in millions)For the Three Months Ended June 3020122011Total revenues$ 79.6$ 71.6Income before taxes*$ 13.3$ 10.4Pretax margin 16.7%14.5%* See footnote (2) on page 7. Total revenues for the Specialty Insurance segment were $79.6 million in the second quarter of 2012, an increase of 11 percent compared with the second quarter of 2011. The increase in revenues was driven by higher premiums earned in both the home warranty and property and casualty business lines. The overall loss ratio in the Specialty Insurance segment was 55 percent in the current quarter, as compared with a 54 percent loss ratio in the prior year. Total investment income was $6.0 million in the current quarter, up $2.9 million from the prior year due to higher net realized investment gains. As a result of higher total investment income in the current quarter, pretax margin was 16.7 percent, up from 14.5 percent in the second quarter of 2011. Teleconference/WebcastFirst American's second quarter 2012 results will be discussed in more detail on Thursday, July 26, 2012, at 11 a.m. ET, via teleconference. The toll-free dial-in number is (888) 989-5217. Callers from outside the United States may dial (773) 799-3263. 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 Aug. 3, 2012, by dialing (203) 369-1533. 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 future title margins, the liquidation of CoreLogic, Inc. shares, closed  title order outlook, emphasis on growth in core businesses primarily through organic growth and select acquisitions, future title claims experience and corporate expense expectations, 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 quarterly report on Form 10-Q for the quarter ended March 31, 2012, 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 Barberio Corporate Communications Investor Relations First American Financial Corporation  First American Financial Corporation (714) 250-3298 (714) 250-5214  (Additional Financial Data Follows)Summary of Consolidated Financial Results and Selected Information(in thousands, except per share amounts and title orders)(unaudited)For the Three Months EndedFor the Six Months EndedJune 30June 302012201120122011Total revenues$1,089,833$ 927,343$2,056,596$1,859,043Income before income taxes$   112,290$  49,215$   163,840$     25,766Income tax expense38,77317,06859,2148,860Net income73,51732,147104,62616,906Less: Net income (loss)             attributable to              noncontrolling interests516(194)332(100)Net income attributable to the Company$     73,001$  32,341$   104,294$     17,006Net income per share attributable to stockholders:     Basic$        0.69$      0.31$        0.98$        0.16     Diluted$        0.68$      0.30$        0.97$        0.16Cash dividends per share$        0.08$      0.06$        0.16$        0.12Weighted average common shares outstanding:     Basic106,230105,222105,926104,953     Diluted107,945106,838107,681106,802Selected Title InformationTitle orders opened411,200302,400788,400589,500Title orders closed289,300215,600550,600441,200Paid title claims$     71,850$  80,257$   152,305$   161,614 First American Financial CorporationSelected Balance Sheet Information(in thousands)(unaudited)June 30, 2012December 31, 2011Cash and cash equivalents$ 796,163$     418,299Investment portfolio2,660,0582,642,917Goodwill and other intangible assets885,871878,414Total assets5,790,9435,370,337Reserve for claim losses974,0261,014,676Notes payable273,630299,975Total stockholders' equity2,158,0242,028,600 First American Financial CorporationSegment Information(in thousands, unaudited)For the Three Months EndedTitleSpecialtyCorporateJune 30, 2012Consolidated Insurance Insurance(incl. Elims.)RevenuesDirect premiums and escrow fees$     497,288$     424,146$       73,142$                -Agent premiums400,361400,361--Information and other167,827167,411418(2)Investment income18,69618,1902,231(1,725)Net realized investment gains(1)5,6611,8643,797-1,089,8331,011,97279,588(1,727)ExpensesPersonnel costs322,043299,34813,7178,978Premiums retained by agents321,348321,348--Other operating expenses205,647189,7599,5946,294Provision for policy losses and other claims95,38954,82040,569-Depreciation and amortization18,45616,6691,116671Premium taxes12,22810,9221,306-Interest2,432661-1,771977,543893,52766,30217,714Income (loss) before income taxes(2)$     112,290$     118,445$       13,286$      (19,441)For the Three Months EndedTitleSpecialtyCorporateJune 30, 2011Consolidated Insurance Insurance(incl. Elims.)RevenuesDirect premiums and escrow fees$     401,978$     333,920$       68,058$                -Agent premiums348,441348,441--Information and other157,710157,2934161Investment income22,09420,0262,567(499)Net realized investment (losses) gains(1)(2,880)(1,832)605(1,653)927,343857,84871,646(2,151)ExpensesPersonnel costs293,451269,74012,49011,221Premiums retained by agents279,812279,812--Other operating expenses196,780181,7839,4885,509Provision for policy losses and other claims77,23740,26736,970-Depreciation and amortization18,86716,9551,077835Premium taxes9,9138,7071,206-Interest2,068(167)-2,235878,128797,09761,23119,800Income (loss) before income taxes(2)$       49,215$       60,751$       10,415$      (21,951) (1)Includes other-than-temporary impairment (OTTI) losses recorded in earnings.(2)Beginning with the first quarter of 2012, 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 as further disclosed in the company's quarterly report on Form 10-Q. First American Financial CorporationSegment Information(in thousands, unaudited)For the Six Months EndedTitleSpecialtyCorporateJune 30, 2012Consolidated Insurance Insurance(incl. Elims.)RevenuesDirect premiums and escrow fees$     911,074$     767,785$     143,289$                -Agent premiums777,347777,347--Information and other323,587322,700893(6)Investment income41,07335,5114,696866Net realized investment gains (losses)(1)3,515(150)4,908(1,243)2,056,5961,903,193153,786(383)ExpensesPersonnel costs627,322576,92527,38023,017Premiums retained by agents623,512623,512--Other operating expenses394,797361,51020,63712,650Provision for policy losses and other claims182,067107,00075,067-Depreciation and amortization36,51533,0022,1721,341Premium taxes23,07620,6552,421-Interest5,4671,322-4,1451,892,7561,723,926127,67741,153Income (loss) before income taxes(2)$     163,840$     179,267$       26,109$      (41,536)For the Six Months EndedTitleSpecialtyCorporateJune 30, 2011Consolidated Insurance Insurance(incl. Elims.)RevenuesDirect premiums and escrow fees$     763,072$     629,351$     133,721$                -Agent premiums748,362748,362--Information and other308,468307,7207453Investment income42,86537,5935,075197Net realized investment (losses) gains(1) (3,724)(3,255)936(1,405)1,859,0431,719,771140,477(1,205)ExpensesPersonnel costs576,753528,80724,14123,805Premiums retained by agents599,799599,799--Other operating expenses387,170357,29519,09810,777Provision for policy losses and other claims206,749136,64270,107-Depreciation and amortization37,96634,1262,0931,747Premium taxes18,95616,7472,209-Interest5,8841,300-4,5841,833,2771,674,716117,64840,913Income (loss) before income taxes(2)$       25,766$       45,055$       22,829$      (42,118) (1)Includes other-than-temporary impairment (OTTI) losses recorded in earnings.(2)Beginning with the first quarter of 2012, 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 as further disclosed in the company's quarterly report on Form 10-Q. First American Financial CorporationExpense Ratio ReconciliationTitle Insurance and Services Segment($ in thousands, unaudited)For the Three Months EndedFor the Six Months EndedJune 30June 302012201120122011Total revenues$ 1,011,972$    857,848$ 1,903,193$ 1,719,771-Net realized investment gains (losses)1,864(1,832)(150)(3,255)-Investment income18,19020,02635,51137,593-Premiums retained by agents 321,348279,812623,512599,799Net operating revenues$    670,570$    559,842$ 1,244,320$ 1,085,634Personnel and other operating expenses$    489,107$    451,523$    938,435$    886,102Ratio (% net operating revenues)72.9%80.7%75.4%81.6%Ratio (% total revenues)48.3%52.6%49.3%51.5%  SOURCE First American Financial Corporation