First American Financial Reports Third Quarter 2011 Results

—Reports Earnings of 20 Cents per Diluted Share—

October 27, 2011, SANTA ANA, Calif.

Download the complete release as a PDF (PDF 254kb)

 

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 Highlights

  • Title 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 2007
  • Commercial division revenues of $89.0 million, up 22 percent compared to last year
  • International division revenues of $97.4 million, up 24 percent compared to last year
  • Specialty Insurance segment pretax income of $6.7 million for a 9.0 percent margin
  • Cash flow from operations of $53.2 million
  • Debt-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 30

 

 

2011


 

2010

 

Total revenues

$ 965.0


 

$ 1,003.5

 

Income before taxes

38.4


 

56.0

 

 

 

 

 
 

Net income

$   21.0


 

$      33.1

 

Net income per diluted share

0.20


 

0.31

 

 
 
       


Total 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 30

 

 

2011


 

2010

 

Total revenues

$   897.8


 

$    924.7

 

 

 

 

 
 

Income before taxes

$     48.9


 

$      60.0

 

Pretax margin

5.4%


 

6.5%

 

 

 

 

 
 

Direct open orders

344,500


 

418,900

 

Direct closed orders

226,600


 

276,700

 

 

 

 

 
 

Commercial*


 

 

 
 

   Total revenues

$     89.0


 

$      72.9

 

   Open orders

17,300


 

16,500

 

   Closed orders

9,400


 

7,800

 

   Average revenue per order

$   7,600


 

$    7,700

 

* Includes commercial activity from the National Commercial Services division only

 
       


Total 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 millionin 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 30

 

 

2011


 

2010

 

Total revenues

$74.3


 

$74.6

 

 

 

 

 
 

Income before taxes

$  6.7


 

$12.2

 

Pretax 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.

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.

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 Statements

Certain 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 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)




 

First American Financial Corporation

 

Summary of Consolidated Financial Results and Selected Information

 

(in thousands, except per share amounts and title orders)

 

(unaudited)

 

 

 

 

 

 

 

 

 
 

 

For the Three Months Ended


 

For the Nine Months Ended

 

 

September 30


 

September 30

 

 

2011


 

2010


 

2011


 

2010

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 
 

Total revenues

$                   964,965


 

$  1,003,523


 

$  2,824,008


 

$  2,881,872

 

 

 

 

 

 

 

 

 
 

Income before income taxes

$                     38,411


 

$       55,988


 

$       64,177


 

$     137,523

 

Income tax expense

17,116


 

22,645


 

25,976


 

56,311

 

Net income

21,295


 

33,343


 

38,201


 

81,212

 

Less: Net income attributable to noncontrolling interests

252


 

210


 

152


 

477

 

Net income attributable to the Company

$                     21,043


 

$       33,133


 

$       38,049


 

$       80,735

 

 

 

 

 

 

 

 

 
 

Net income per share attributable to stockholders:


 

 

 

 

 

 

 
 

    Basic

$                         0.20


 

$           0.32


 

$           0.36


 

$           0.78

 

    Diluted

$                         0.20


 

$           0.31


 

$           0.36


 

$           0.76

 

 

 

 

 

 

 

 

 
 

Cash dividends per share

$                         0.06


 

$           0.06


 

$           0.18


 

$           0.12

 

 

 

 

 

 

 

 

 
 

Weighted average common shares outstanding:


 

 

 

 

 

 

 
 

    Basic

105,375


 

104,173


 

105,104


 

104,064

 

    Diluted

107,005


 

106,112


 

106,837


 

106,010

 

 

 

 

 

 

 

 

 
 

Selected Title Information


 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 
 

Title orders opened

344,500


 

418,900


 

934,000


 

1,121,400

 

 

 

 

 

 

 

 

 
 

Title orders closed

226,600


 

276,700


 

667,800


 

783,000

 

 

 

 

 

 

 

 

 
 

Paid title claims

$                     74,887


 

$       84,881


 

$     236,501


 

$     235,547

 
               


First American Financial Corporation

 

Selected Balance Sheet Information

 

(in thousands)

 

(unaudited)

 

 
 

 

September 30,
2011


 

December 31,
2010

 

 

 

 

 
 

Cash and cash equivalents

$  630,968


 

$  728,746

 

Investment portfolio

2,567,996


 

2,683,038

 

Goodwill and other intangible assets

874,051


 

882,081

 

Total assets

5,556,259


 

5,821,826

 

Reserve for claim losses

1,058,903


 

1,108,238

 

Notes payable

278,924


 

293,817

 

Total stockholders' equity

1,976,246


 

1,980,017

 
       


First American Financial Corporation

 

Segment Information

 

(in thousands)

 

(unaudited)

 

 

 

 

 

 

 

 

 
 

For the Three Months Ended


 

 

Title


 

Specialty


 

Corporate

 

September 30, 2011

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

 

Revenues


 

 

 

 

 

 

 
 

Direct premiums and escrow fees

$    425,266


 

$ 353,813


 

$  71,453


 

$              -

 

Agent premiums

366,028


 

366,028


 

-


 

-

 

Information and other

160,236


 

160,234


 

-


 

2

 

Investment income

16,695


 

19,633


 

2,635


 

(5,573)

 

Net realized investment (losses) gains*

(3,260)


 

(1,878)


 

195


 

(1,577)

 

 

964,965


 

897,830


 

74,283


 

(7,148)

 

Expenses


 

 

 

 

 

 

 
 

Personnel costs

293,871


 

279,047


 

13,578


 

1,246

 

Premiums retained by agents

293,583


 

293,583


 

-


 

-

 

Other operating expenses

189,277


 

174,028


 

8,976


 

6,273

 

Provision for policy losses and other claims

112,177


 

69,538


 

42,639


 

-

 

Depreciation and amortization

19,018


 

17,053


 

1,046


 

919

 

Premium taxes

15,403


 

14,049


 

1,354


 

-

 

Interest

3,225


 

1,635


 

5


 

1,585

 

 

926,554


 

848,933


 

67,598


 

10,023

 

 

 

 

 

 

 

 

 
 

Income (loss) before income taxes

$      38,411


 

$   48,897


 

$    6,685


 

$   (17,171)

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 
 

For the Three Months Ended


 

 

Title


 

Specialty


 

Corporate

 

September 30, 2010

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

 

Revenues


 

 

 

 

 

 

 
 

Direct premiums and escrow fees

$    427,334


 

$ 357,908


 

$  69,426


 

$              -

 

Agent premiums

396,094


 

396,094


 

-


 

-

 

Information and other

153,222


 

153,222


 

-


 

-

 

Investment income

27,309


 

19,962


 

2,974


 

4,373

 

Net realized investment (losses) gains*

(436)


 

(2,517)


 

2,174


 

(93)

 

 

1,003,523


 

924,669


 

74,574


 

4,280

 

Expenses


 

 

 

 

 

 

 
 

Personnel costs

307,713


 

285,119


 

12,769


 

9,825

 

Premiums retained by agents

319,840


 

319,840


 

-


 

-

 

Other operating expenses

200,717


 

182,736


 

10,436


 

7,545

 

Provision for policy losses and other claims

86,450


 

49,546


 

36,904


 

-

 

Depreciation and amortization

18,991


 

16,990


 

1,057


 

944

 

Premium taxes

9,767


 

8,609


 

1,158


 

-

 

Interest

4,057


 

1,805


 

4


 

2,248

 

 

947,535


 

864,645


 

62,328


 

20,562

 

 

 

 

 

 

 

 

 
 

Income (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 Corporation

 

Segment Information

 

(in thousands)

 

(unaudited)

 

 

 

 

 

 

 

 

 
 

For the Nine Months Ended


 

 

Title


 

Specialty


 

Corporate

 

September 30, 2011

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

 

Revenues


 

 

 

 

 

 

 
 

Direct premiums and escrow fees

$   1,190,587


 

$     984,668


 

$   205,919


 

$             -

 

Agent premiums

1,114,390


 

1,114,390


 

-


 

-

 

Information and other

466,455


 

466,450


 

-


 

5

 

Investment income

59,560


 

56,214


 

7,710


 

(4,364)

 

Net realized investment (losses) gains*

(6,984)


 

(5,133)


 

1,131


 

(2,982)

 

 

2,824,008


 

2,616,589


 

214,760


 

(7,341)

 

Expenses


 

 

 

 

 

 

 
 

Personnel costs

874,502


 

817,355


 

37,968


 

19,179

 

Premiums retained by agents

893,382


 

893,382


 

-


 

-

 

Other operating expenses

572,560


 

526,011


 

28,193


 

18,356

 

Provision for policy losses and other claims

318,926


 

206,180


 

112,746


 

-

 

Depreciation and amortization

56,984


 

51,172


 

3,139


 

2,673

 

Premium taxes

34,359


 

30,796


 

3,563


 

-

 

Interest

9,118


 

4,482


 

14


 

4,622

 

 

2,759,831


 

2,529,378


 

185,623


 

44,830

 

 

 

 

 

 

 

 

 
 

Income (loss) before income taxes

$       64,177


 

$      87,211


 

$     29,137


 

$    (52,171)

 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 
 

 

 

 

 

 

 

 

 
 

For the Nine Months Ended


 

 

Title


 

Specialty


 

Corporate

 

September 30, 2010

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

 

Revenues


 

 

 

 

 

 

 
 

Direct premiums and escrow fees

$   1,221,550


 

$  1,018,184


 

$   203,366


 

$             -

 

Agent premiums

1,132,726


 

1,132,726


 

-


 

-

 

Information and other

451,340


 

451,340


 

-


 

-

 

Investment income

71,280


 

57,925


 

9,155


 

4,200

 

Net realized investment gains (losses)*

4,976


 

3,736


 

1,760


 

(520)

 

 

2,881,872


 

2,663,911


 

214,281


 

3,680

 

Expenses


 

 

 

 

 

 

 
 

Personnel costs

891,671


 

831,296


 

40,222


 

20,153

 

Premiums retained by agents

913,706


 

913,706


 

-


 

-

 

Other operating expenses

600,663


 

548,011


 

31,981


 

20,671

 

Provision for policy losses and other claims

240,436


 

138,196


 

102,240


 

-

 

Depreciation and amortization

59,364


 

53,156


 

4,203


 

2,005

 

Premium taxes

28,289


 

25,056


 

3,233


 

-

 

Interest

10,220


 

6,308


 

14


 

3,898

 

 

2,744,349


 

2,515,729


 

181,893


 

46,727

 

 

 

 

 

 

 

 

 
 

Income (loss) before income taxes

$     137,523


 

$     148,182


 

$     32,388


 

$    (43,047)

 

 

 

 

 

 

 

 

 
 

*Includes other-than-temporary impairment (OTTI) losses recorded in earnings.

 

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