First American Financial Reports First Quarter 2013 Results

- Reports Earnings of 33 Cents per Diluted Share -

April 25, 2013, Santa Ana, Calif.,

First American Financial Corporation (NYSE: FAF), a leading global provider of title insurance and settlement services for residential and commercial real estate transactions, today announced financial results for the first quarter ended March 31, 2013.

Download the complete press release as a PDF (244 KB)

 

Current Quarter Highlights

  • Total revenues up 19 percent compared with last year
  • Agent premiums up 29 percent compared with last year
  • Title Insurance and Services segment pretax margin of 6.0 percent
    • Includes $28.6 million reserve strengthening, largely due to 2006-2007 commercial claims
  • Title order mix shifting to higher-premium resale transactions
    • Resale open orders per day up 13 percent
    • Refinance open orders per day down 7 percent
  • Commercial division revenues of $86.9 million, up 7 percent compared with last year
  • Specialty Insurance segment total revenues up 10 percent, with a pretax margin of 19.5 percent

 

Selected Financial Information

($ in millions, except per share data)


 

 

 

For the Three Months Ended

March 31


 

2013


 

2012

Total revenues

$ 1,146.8


 

$ 966.8

Income before taxes

59.6


 

51.6


 

 

 

 

Net income

$      36.2


 

$   31.3

Net income per diluted share

0.33


 

0.29

 

Total revenues for the first quarter of 2013 were $1.1 billion, an increase of 19 percent relative to the first quarter of 2012. Net income in the current quarter was $36.2 million, or 33 cents per diluted share, compared with net income of $31.3 million, or 29 cents per diluted share, in the first quarter of 2012. The current quarter results include net realized investment gains of $9.3 million, or 5 cents per diluted share, compared with net realized investment losses of $0.9 million, or 1 cent per diluted share, in the first quarter of 2012.

"Market conditions were good in the first quarter with an increase in closed orders that drove our 19 percent revenue growth," said Dennis J. Gilmore, chief executive officer for First American Financial Corporation. "And we're pleased that a solid increase in our higher-premium resale and commercial open orders fully offset the decline we experienced in refinance volume.

"Our financial results for the first quarter were negatively impacted by a $29 million reserve strengthening in the title segment, primarily driven by a few large commercial claims from policy years 2006 and 2007. Although it's unusual to have this level of large commercial claim activity in a single quarter, we continue to see a general decline in paid title claims as legacy policy years become more seasoned and recent policy years demonstrate lower claims activity. Putting aside the impact of the large commercial claims, our first quarter results indicate that the year is off to a good start.

"Our business outlook remains positive as we enter the important spring selling season. So far in April, our resale open orders are running 4 percent higher than in March and up 21 percent compared with last year. We believe the housing market is improving and that the company is well positioned to deliver strong financial results as the multiyear recovery continues."      

 

Title Insurance and Services

($ in millions, except average revenue per order)


 

 

For the Three Months Ended

March 31


 

2013


 

2012

Total revenues

$   1,062.6


 

$    891.2


 

 

 

 

Income before taxes

$        64.3


 

$      60.8

Pretax margin

6.0%


 

6.8%


 

 

 

 

Direct open orders

376,600


 

377,200

Direct closed orders

291,400


 

261,300


 

 

 

 

Commercial*


 

 

 

   Total revenues

$        86.9


 

$      81.5

   Open orders

19,400


 

17,900

     Closed orders

10,000


 

10,400

   Average revenue per order

$      7,800


 

$    6,700


 

 

 

 

* Includes commercial activity from the National Commercial Services division only.

 

Total revenues for the Title Insurance and Services segment were $1.1 billion, a 19 percent increase from the same quarter of 2012. Direct premiums and escrow fees were up 16 percent from the first quarter of 2012, driven by a 12 percent increase in the number of direct title orders closed in the quarter and a 4 percent increase in the revenue per direct title order to $1,373. The increase in revenue per direct title order overall was primarily attributable to higher revenue per order from residential resale and commercial transactions. Agent premiums were up 29 percent in the current quarter, which is consistent with the increase in direct premiums experienced in the previous quarter, reflecting the typical reporting lag of approximately one quarter.

Information and other revenues were $151.7 million this quarter, down 2 percent compared with the same quarter of last year. The decline was primarily due to lower demand for title-related services in Canada, largely offset by higher demand for the company's default information products. Total investment income was $26.4 million in the first quarter, an increase of $11.1 million from the first quarter of 2012, reflecting higher net realized investment gains in the current quarter.

Personnel costs were $316.8 million in the first quarter, an increase of $39.3 million, or 14 percent, compared with the first quarter of 2012. This increase was primarily due to higher staffing levels required to support the increase in order volume.

Other operating expenses were $188.6 million in the first quarter, up $16.9 million, or 10 percent, compared with the first quarter of 2012. The increase was primarily due to higher production-related expenses and temporary labor costs driven by the increase in order volumes in the current quarter.

The provision for policy losses and other claims was $77.4 million in the first quarter, or 8.7 percent of title premiums and escrow fees, up $25.2 million compared with the same quarter of the prior year. The current quarter rate of 8.7 percent reflects an ultimate loss rate of 5.6 percent for the current policy year and a $28.6 million net increase in the loss reserve estimates for prior policy years. The increase in loss reserve estimates for prior policy years reflected claims development above expected levels during the first quarter, primarily due to a few large commercial claims from policy years 2006 and 2007.

Pretax income for the Title Insurance and Services segment was $64.3 million in the first quarter, compared with $60.8 million in the first quarter of 2012. Pretax margin was 6.0 percent in the current quarter, compared with 6.8 percent last year.

 

Specialty Insurance

($ in millions)


 

 

 

For the Three Months Ended

March 31


 

2013


 

2012

Total revenues

$   81.5


 

$   74.2


 

 

 

 

Income before taxes

$   15.9


 

$   12.8

Pretax margin

19.5%


 

17.3%

 

Total revenues for the Specialty Insurance segment were $81.5 million in the first quarter of 2013, an increase of 10 percent compared with the first quarter of 2012. 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 50 percent in the current quarter, compared with a 49 percent loss ratio in the prior year. Both business lines delivered operating leverage that increased the pretax margin to 19.5 percent from 17.3 percent in the first quarter of 2012.

Teleconference/Webcast

First American's first quarter 2013 results will be discussed in more detail on Thursday, April 25, 2013, at 11 a.m. ET, via teleconference. The toll-free dial-in number is (888) 606-8414. Callers from outside the United States may dial (212) 547-0240. The passcode 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, 2013, by dialing (203) 369-1472. An audio archive of the call will also be available on First American's investor website.

About First American

First 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 also provides 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 $4.5 billion in 2012, the company offers its products and services directly and through its agents throughout the United 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 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 outlook for the housing market and its effects on the company, future title claims experience, future refinance volumes, the commercial transaction pipeline, and improving operating leverage, 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 in relationships with large mortgage lenders; changes in measures of the strength of the company's title insurance underwriters, including ratings and statutory capital and surplus; 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, 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 personnel and other operating expense ratios. 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.

 

 

(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


 

March 31


 

2013


 

2012


 

 

 

 

 

 

 

 

Total revenues

$1,146,763


 

$966,763


 

 

 

 

Income before income taxes

$ 59,592


 

$ 51,550

Income tax expense

23,360


 

20,441

Net income

36,232


 

31,109

Less: Net income (loss)


 

 

 

attributable to noncontrolling interests

54


 

(184)

Net income attributable to the company

$ 36,178


 

$ 31,293


 

 

 

 

Net income per share attributable to stockholders:


 

 

 

Basic

$ 0.34


 

$ 0.30

Diluted

$ 0.33


 

$ 0.29


 

 

 

 

Cash dividends declared per share

$ 0.12


 

$ 0.08


 

 

 

 

Weighted average common shares outstanding:


 

 

 

Basic

107,552


 

105,621

Diluted

109,993


 

107,480


 

 

 

 

Selected Title Information


 

 

 

 

 

 

 

Title orders opened

376,600


 

377,200


 

 

 

 

Title orders closed

291,400


 

261,300


 

 

 

 

Paid title claims

$ 71,337


 

$ 80,455

 

First American Financial Corporation

Selected Balance Sheet Information

(in thousands)

(unaudited)


 

 

 

 

 

March 31, 2013


 

December 31, 2012


 

 

 

 

Cash and cash equivalents

$ 814,514


 

$ 627,208

Investment portfolio

3,093,758


 

3,113,560

Goodwill and other intangible assets

898,081


 

902,952

Total assets

6,181,909


 

6,050,847

Reserve for claim losses

977,254


 

976,462

Notes payable

317,378


 

229,760

Total stockholders' equity

$ 2,379,867


 

$ 2,348,065

 

First American Financial Corporation

Segment Information

(in thousands, unaudited)


 

 

 

 

 

 

 

 

For the Three Months Ended


 

 

Title


 

Specialty


 

Corporate

March 31, 2013

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

Revenues


 

 

 

 

 

 

 

Direct premiums and escrow fees

$ 477,851


 

$ 399,985


 

$ 77,866


 

$ -

Agent premiums

484,465


 

484,465


 

-


 

-

Information and other

152,133


 

151,749


 

390


 

(6)

Investment income

23,058


 

18,986


 

1,678


 

2,394

Net realized investment gains(1)

9,256


 

7,396


 

1,575


 

285


 

1,146,763


 

1,062,581


 

81,509


 

2,673

Expenses


 

 

 

 

 

 

 

Personnel costs

344,500


 

316,844


 

14,331


 

13,325

Premiums retained by agents

387,543


 

387,543


 

-


 

-

Other operating expenses

205,346


 

188,614


 

10,219


 

6,513

Provision for policy losses and other claims

116,026


 

77,360


 

38,666


 

-

Depreciation and amortization

18,395


 

16,483


 

1,179


 

733

Premium taxes

12,117


 

10,904


 

1,213


 

-

Interest

3,244


 

564


 

-


 

2,680


 

1,087,171


 

998,312


 

65,608


 

23,251


 

 

 

 

 

 

 

 

Income (loss) before income taxes

$ 59,592


 

$ 64,269


 

$ 15,901


 

$ (20,578)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

For the Three Months Ended


 

 

Title


 

Specialty


 

Corporate

March 31, 2012

Consolidated


 

Insurance


 

Insurance


 

(incl. Elims.)

Revenues


 

 

 

 

 

 

 

Direct premiums and escrow fees

$ 413,786


 

$ 343,639


 

$ 70,147


 

$ -

Agent premiums

376,986


 

376,986


 

-


 

-

Information and other

155,760


 

155,289


 

475


 

(4)

Investment income

21,134


 

17,321


 

2,465


 

1,348

Net realized investment (losses) gains(1)

(903)


 

(2,014)


 

1,111


 

-


 

966,763


 

891,221


 

74,198


 

1,344

Expenses


 

 

 

 

 

 

 

Personnel costs

305,279


 

277,577


 

13,663


 

14,039

Premiums retained by agents

302,164


 

302,164


 

-


 

-

Other operating expenses

189,150


 

171,752


 

11,042


 

6,356

Provision for policy losses and other claims

86,678


 

52,179


 

34,499


 

-

Depreciation and amortization

18,059


 

16,333


 

1,055


 

671

Premium taxes

10,848


 

9,733


 

1,115


 

-

Interest

3,035


 

661


 

-


 

2,374


 

915,213


 

830,399


 

61,374


 

23,440


 

 

 

 

 

 

 

 

Income (loss) before income taxes

$ 51,550


 

$ 60,822


 

$ 12,824


 

$ (22,096)


 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

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

 

First American Financial Corporation

Expense Ratio Reconciliation

Title Insurance and Services Segment

($ in thousands, unaudited)


 

 

 

 

 

 

 

 

 

For the Three Months Ended


 

March 31


 

2013


 

2012


 

 

 

 

 

 

 

 

Total revenues

$ 1,062,581


 

$ 891,221

Less: Net realized investment gains (losses) (1)

7,396


 

(2,014)

Investment income

18,986


 

17,321

Premiums retained by agents

387,543


 

302,164

Net operating revenues

$ 648,656


 

$ 573,750


 

 

 

 

 

 

 

 

Personnel and other operating expenses

$ 505,458


 

$ 449,329

Ratio (% net operating revenues)

77.9%


 

78.3%

Ratio (% total revenues)

47.6%


 

50.4%


 

 

 

 

 

 

 

 

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

 

SOURCE First American Financial Corporation

 

Download the complete press release as a PDF (244 KB)

 

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